<PAGE>
As filed with Securities and Exchange Commission on
April 27, 1999
Registration No. 33-88082
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 6
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_______________________
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
NEW ENGLAND LIFE INSURANCE COMPANY
(Name of Depositor)
501 Boylston Street
Boston, Massachusetts 02117
(Address of depositor's principal executive offices)
_____________________
MARIE C. SWIFT
Counsel
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
___________________________
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Units of Interest in Flexible Premium
Adjustable Variable Life Insurance Policies.
<PAGE>
NEW ENGLAND VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross-Reference Sheet
Form N-8B-2
Item No. Caption in Prospectus
- ----------- ---------------------
1 Cover Page
2 Cover Page
3 Inapplicable
4 NELICO's Distribution Agreement
5 NELICO
6 The Variable Account
9 Inapplicable
10(a) Other Policy Features
10(b) Policy Values and Benefits
10(c),(d),(e) Death Benefit; Cash Value; 24 Month Right; Surrender;
Partial Surrender; Right to Return the Policy; Loan
Provision; Transfer Option; Premiums
10(f),(g),(h) Voting Rights; Rights Reserved by NELICO
10(i) Limits to NELICO's Right to Challenge the Policy;
Payment of Proceeds; Investment Options
11 The Variable Account
12 Investments of the Variable Account; NELICO's
Distribution Agreement
13 Charges and Expenses; NELICO's Distribution Agreement;
Charge for NELICO's Income Taxes; Appendix A
14 Amount Provided for Investment Under the Policy;
NELICO's Distribution Agreement
15 Premiums
16 Investments of the Variable Account
17 Captions referenced under Items 10(c),(d),(e) and (i)
above
18 The Variable Account
19 Reports; NELICO's Distribution Agreement
20 Captions referenced under Items 6 and 10(g) above
21 Loan Provision
22 Inapplicable
23 NELICO's Distribution Agreement
24 Limits to NELICO's Right to Challenge the Policy
25 NELICO
26 NELICO's Distribution Agreement
<PAGE>
Form N-8B-2
Item No. Caption in Prospectus
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27 NELICO
28 Management
29 NELICO
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 NELICO's Distribution Agreement
35 NELICO
36 Inapplicable
37 Inapplicable
38 NELICO's Distribution Agreement
39 NELICO's Distribution Agreement
40 NELICO's Distribution Agreement
41(a) NELICO's Distribution Agreement
42 Inapplicable
43 Inapplicable
44(a) Investments of the Variable Account; Amount Provided
for Investment Under the Policy; Deductions from
Premiums; Flexible Premiums
44(b) Charges and Expenses
44(c) Flexible Premiums; Deductions from Premiums
45 Inapplicable
46 Investments of the Variable Account; Captions
referenced under Items 10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefit; Lapse and Reinstatement;
Charges and Expenses; Additional Benefits by Rider; 24
Month Right; Payment Options; Policy Owner and
Beneficiary; Premiums; NELICO's Distribution Agreement
52 Rights Reserved by NELICO
53 Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
ZENITH FLEXIBLE LIFE
Supplement dated April 30, 1999
to
Prospectus dated April 30, 1999
The prospectus on page A-15 under "Deductions from Premiums" states that we
currently intend to waive the 4% sales charge on the premiums you pay in a
Policy year that are in excess of 110% of a Target Premium, plus a portion of
certain rider premiums. However, for Policies issued prior to May 1, 1998
(including your Policy), we currently intend to implement this waiver in a
Policy year once you have paid 100% (rather than 110%) of the Target Premium for
your Policy, plus a portion of certain rider premiums, in that Policy year. We
have the right not to waive the charge or to resume the charge at any time.
VL-123-99
<PAGE>
ZENITH FLEXIBLE LIFE
Supplement dated April 30, 1999 to Prospectus dated April 30, 1999
For Policies purchased through payroll deductions:
If you elect to pay monthly planned premiums using payroll deductions that
your employer will remit to us, New England Life Insurance Company, on your
behalf, the following special provisions apply to you:
1. Policy Date. Your employer will begin making payroll deductions six
weeks in advance of your first monthly planned premium payment. The Policy Date
and the investment start date for your Policy will be the date when we receive
your first monthly planned premium payment.
2. Temporary Life Insurance Coverage. The insured under your Policy will
be covered by temporary life insurance for a limited period under the terms of a
temporary insurance agreement. Coverage will begin as of the date of the
temporary insurance agreement, which is generally the same date you sign your
application. (Refer to the temporary insurance agreement for details.)
3. Planned Premium Payments. You will be on a monthly planned premium
schedule that assumes your employer will remit 12 premium payments each year,
regardless of the frequency with which payroll deductions are made. The amount
of your monthly planned premium payments may vary from month to month, depending
on the amount of payroll deductions accumulated prior to each payment. Premiums
will be applied to your Policy on the day we receive them.
4. Lapse. Your monthly planned premium schedule is not necessarily
designed to keep your Policy in force. We will make Monthly Deductions from the
cash value of your Policy on the first day of each Policy month, beginning with
the Policy Date. (See "Monthly Deduction from Cash Value" for more
information.) Your Policy will be in default in any month when there is
insufficient net cash value for us to make a Monthly Deduction unless a Minimum
Guaranteed Death Benefit is in effect or your Policy is protected against lapse
during the first three Policy Years by payment of the Minimum Premium. (See
"Monthly Deduction from Cash Value," "Flexible Premiums" and "Lapse and
Reinstatement" for more information.) A default will occur if for any reason
there is insufficient net cash value in the Policy to pay a Monthly Deduction.
A default may result, for example, if you miss a payroll deduction. THE CASH
VALUE OF PREMIUMS ALLOCATED TO THE VARIABLE ACCOUNT IS NOT GUARANTEED, AND
UNFAVORABLE INVESTMENT EXPERIENCE CAN REDUCE IT TO ZERO. YOU WILL BEAR THE
ENTIRE INVESTMENT RISK WITH RESPECT TO CASH VALUE IN THE VARIABLE ACCOUNT. If a
default occurs, we will issue a pre-lapse notice to inform the Policy Owner of
the amount due. The Policy provides a 62 day grace period for payment of a
premium sufficient to pay the Monthly Deduction and prevent lapse. To keep your
Policy in force, you will need to pay the amount shown in the pre-lapse notice
directly to us.
5. Additional Payments and Loan Repayments. You cannot use payroll
deductions to make payments in addition to your planned premium payments or to
repay a Policy loan. Please contact us or your registered representative if you
would like to arrange either of these transactions.
<PAGE>
ZENITH FLEXIBLE LIFE
Flexible Premium Adjustable
Variable Life Insurance Policies
Issued by
New England Variable Life Separate Account of
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02116
(617) 578-2000
This prospectus offers individual flexible premium adjustable variable life
insurance policies the ("Policies") issued by New England Life Insurance
Company ("NELICO").
The Policy provides premium flexibility and two types of death benefit
guarantees as long as your total premiums paid meet certain minimum
requirements and no policy loan is outstanding. (Policies issued in New York
offer one death benefit guarantee.)
You may choose between two death benefit options. One provides a fixed death
benefit equal to the Policy's face amount. The other provides a death benefit
that may vary daily with the investment experience of the Eligible Funds. Under
both death benefit options, the minimum death benefit guarantee(s) are
available. Cash value allocated to the Eligible Funds is not guaranteed, and
fluctuates daily with the investment results of the Eligible Funds.
You allocate net premiums among the investment Sub-Accounts of NELICO's
Variable Life Separate Account (the "Variable Account"). Each Sub-Account of
the Variable Account invests in shares of an Eligible Fund. The Eligible Funds
are:
NEW ENGLAND ZENITH FUND
Back Bay Advisors Bond Income Morgan Stanley International Magnum
Series Equity Series
Back Bay Advisors Managed Series MFS Investors Series*
Back Bay Advisors Money Market MFS Research Managers Series*
Series VARIABLE INSURANCE PRODUCTS FUND
Capital Growth Series ("VIP")
Westpeak Growth and Income Series Overseas Portfolio
Westpeak Stock Index Series Equity-Income Portfolio
Loomis Sayles Balanced Series High Income Portfolio
Loomis Sayles Small Cap Series Alger Equity Growth Series
Davis Venture Value Series VARIABLE INSURANCE PRODUCTS FUND II
Goldman Sachs Midcap Value Series ("VIP II")
Asset Manager Portfolio
You may also allocate net premiums to a Fixed Account in most states. Limits
apply to transfers to and from the Fixed Account.
You may cancel the Policy during the "Right to Return the Policy" period.
Replacing existing insurance with the Policy might not be to your advantage.
- ----------
* Availability is subject to any necessary state insurance department
approvals.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
POLICIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ELIGIBLE FUND PROSPECTUSES ARE ATTACHED. PLEASE READ THEM AND KEEP THEM
FOR REFERENCE.
WE DO NOT GUARANTEE HOW ANY OF THE SUB-ACCOUNTS OR ELIGIBLE FUNDS WILL
PERFORM. THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
APRIL 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
GLOSSARY.................................................................. A-4
INTRODUCTION TO THE POLICIES.............................................. A-5
The Policies............................................................ A-5
Availability of the Policy.............................................. A-6
Policy Charges.......................................................... A-7
How the Policy Works.................................................... A-9
Receipt of Communications and Payments at NELICO's Home Office.......... A-10
NELICO.................................................................. A-10
POLICY VALUES AND BENEFITS................................................ A-11
Death Benefit........................................................... A-11
Minimum Guaranteed Death Benefit........................................ A-11
Death Proceeds Payable.................................................. A-12
Change in Death Benefit Option.......................................... A-12
Extending the Maturity Date............................................. A-13
Cash Value.............................................................. A-13
Net Investment Experience............................................... A-14
Allocation of Net Premiums.............................................. A-14
Amount Provided for Investment under the Policy......................... A-14
Right to Return the Policy.............................................. A-15
State Variations........................................................ A-15
CHARGES AND EXPENSES...................................................... A-15
Deductions from Premiums................................................ A-15
Surrender Charge........................................................ A-16
Monthly Deduction from Cash Value....................................... A-18
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account................................................................ A-20
Group or Sponsored Arrangements......................................... A-21
PREMIUMS.................................................................. A-22
Flexible Premiums....................................................... A-22
Lapse and Reinstatement................................................. A-23
OTHER POLICY FEATURES..................................................... A-24
Increase in Face Amount................................................. A-24
Loan Provision.......................................................... A-25
Surrender............................................................... A-26
Partial Surrender....................................................... A-26
Reduction in Face Amount................................................ A-26
Acceleration of Death Benefit Rider..................................... A-27
Investment Options...................................................... A-27
Transfer Option......................................................... A-28
Substitution of Insured Person.......................................... A-28
Payment of Proceeds..................................................... A-28
24 Month Right.......................................................... A-29
Payment Options......................................................... A-29
Additional Benefits by Rider............................................ A-30
Policy Owner and Beneficiary............................................ A-30
THE VARIABLE ACCOUNT...................................................... A-31
Investments of the Variable Account..................................... A-31
Investment Objectives................................................... A-32
Investment Management................................................... A-34
THE FIXED ACCOUNT......................................................... A-34
General Description..................................................... A-35
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Values and Benefits..................................................... A-35
Policy Transactions..................................................... A-35
NELICO'S DISTRIBUTION AGREEMENT........................................... A-36
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY.......................... A-36
Misstatement of Age or Sex.............................................. A-37
Suicide................................................................. A-37
TAX CONSIDERATIONS........................................................ A-37
Introduction............................................................ A-37
Tax Status of the Policy................................................ A-37
Tax Treatment of Policy Benefits........................................ A-37
NELICO's Income Taxes................................................... A-39
MANAGEMENT................................................................ A-40
VOTING RIGHTS............................................................. A-42
RIGHTS RESERVED BY NELICO................................................. A-43
TOLL-FREE NUMBERS......................................................... A-43
REPORTS................................................................... A-43
ADVERTISING PRACTICES..................................................... A-44
LEGAL MATTERS............................................................. A-44
REGISTRATION STATEMENT.................................................... A-44
EXPERTS................................................................... A-44
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES, NET CASH VALUE
AND ACCUMULATED PREMIUMS................................................. A-45
APPENDIX B: INVESTMENT EXPERIENCE INFORMATION............................. A-54
APPENDIX C: LONG TERM MARKET TRENDS....................................... A-75
APPENDIX D: USES OF LIFE INSURANCE........................................ A-77
APPENDIX E: TAX INFORMATION............................................... A-78
APPENDIX F: TAX LAW AND THE DEATH BENEFIT................................. A-79
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
A-3
<PAGE>
GLOSSARY
Account. A sub-account of the Variable Account or the Fixed Account.
Age. The age of an insured refers to the insured's age at his or her nearest
birthday.
Cash Value. A Policy's cash value includes the amount of its cash value held
in the Variable Account, the amount held in the Fixed Account and, if there is
an outstanding Policy loan, the amount of its cash value held in our general
account as a result of the loan.
Excess Policy Loan. When Policy loans plus accrued interest exceed the
Policy's cash value less the applicable Surrender Charge.
Fixed Account. The Fixed Account is a part of our general account to which
you may allocate net premiums. It provides guarantees of principal and
interest.
Investment Start Date. This is the latest of the date we first receive a
premium payment for the Policy, the date Part II of the Policy application is
signed and the Policy Date.
Maturity Date. The Policy anniversary on which the insured is (or would have
been) age 100. The Policy will not mature on this date if the extended
maturity option has been added to the Policy.
Net Cash Value. The amount you receive if you surrender the Policy. It is
equal to the Policy's cash value reduced by any Surrender Charge that would
apply on surrender and by any outstanding Policy loan and accrued interest.
Net Investment Experience. For any period, a Sub-Account's net investment
experience equals the investment experience of the underlying Eligible Fund's
shares for the same period, reduced by the amount of charges against the Sub-
Account for that period.
Planned Premium. The Planned Premium is the premium payment schedule you
choose to help meet your future goals under the Policy. The Planned Premium is
a level amount that is subject to certain limits under the Policy. Payments in
addition to any Planned Premium are called unscheduled payments in the Policy
and can be paid at any time, subject to certain limits.
Premiums. Premiums include all payments under the Policy, whether a Planned
Premium or an unscheduled payment.
Policy Date. If you make a premium payment with the application, the Policy
Date is generally the later of the date Part II of the application was signed
and receipt of the premium payment. If you choose to pay the initial premium
upon delivery of the Policy, we issue the Policy with a Policy Date which is
generally five days after issue.
Target Premium. We use the Target Premium to determine the amount of
Deferred Sales Charge that may apply on a surrender, partial surrender, lapse
or face amount reduction. In addition, we currently base the 4% sales charge
that applies in a Policy year, as well as sales commissions, on an amount
equal to 110% of the Policy's Target Premium. The Target Premium varies by
issue age, sex and underwriting class of the insured and the Policy's face
amount. The Target Premium is less than or equal to 75% of the annual premium
necessary to maintain a fixed benefit whole life insurance Policy for the same
face amount on the life of the insured. We calculate the annual whole life
premium using an assumed interest rate of 4%, guaranteed cost of insurance
charges and the current level of other Policy charges.
You. "You" refers to the Policy Owner.
A-4
<PAGE>
INTRODUCTION TO THE POLICIES
The Policies
The Policies are designed to provide lifetime insurance coverage. They are
not offered primarily as an investment.
Here is a summary of the Policy's basic features. You should read the entire
prospectus for more complete information.
--You can make premium payments under the Policy based on a schedule you
determine, subject to some limits. We can limit or prohibit unscheduled
payments in some situations, including cases where the insured is in a
substandard risk class. (See "Premiums".)
--You can allocate net premiums to one or more of the Sub-Accounts of the
Variable Account corresponding to mutual fund portfolios after an initial
period in the Zenith Money Market Sub-Account. (See "Allocation of Net
Premiums" and "Investment Options".)
--The mutual fund portfolios available under the Policy include several
common stock funds, including funds which invest primarily in foreign
securities, two bond funds, two managed funds, a balanced fund, and a
money market fund. You may allocate your Policy's cash value to a maximum
of ten accounts (including the Fixed Account) at any one time. (See
"Investments of the Variable Account".)
--If the Fixed Account is available in your state, you may also allocate
funds to that account. We provide guarantees of Fixed Account principal
and interest. SPECIAL LIMITS APPLY TO TRANSFERS OF CASH VALUE FROM THE
FIXED ACCOUNT. We have the right to restrict transfers of cash value and
allocations of premiums into the Fixed Account. (See "The Fixed Account".)
--The cash value of the Policy will vary daily based on the net investment
experience of your Policy's Sub-Accounts and the amount of interest
credited to your Policy's cash value in the Fixed Account. (See "Cash
Value", "Charges and Expenses", "Premiums", "Loan Provision" and "Partial
Surrender".)
--The portion of the cash value in the Sub-Accounts is not guaranteed. You
bear the investment risk on this portion of the cash value. (See "Cash
Value".)
--You may choose between two death benefit options under the Policy. The
level option death benefit equals the Policy's face amount. The variable
option death benefit equals the face amount plus any cash value, which
varies with the net investment experience of your Policy's Sub-Accounts
and the rate of interest credited on your cash value in the Fixed Account.
The death benefit in either case could increase to satisfy tax law
requirements if the cash value reaches certain levels. (See "Death
Benefit".)
--Regardless of investment experience, the death benefit is guaranteed not
to be less than the Policy's face amount, as long as the total amount of
premiums paid, with interest, less any partial surrenders, with interest,
at least equals certain minimum amounts and there is no outstanding Policy
loan. (See "Death Benefit" and "Minimum Guaranteed Death Benefit".)
--Unless the extended maturity option is part of your Policy, if the insured
is alive and the Policy is in force on the Maturity Date, the Policy will
then terminate. In that case we pay you the Policy's net cash value as of
the Maturity Date. (See "Extending the Maturity Date".)
--You may change your allocation of future net premiums at any time. (See
"Allocation of Net Premiums" and "Investment Options".)
--After the "Right to Return the Policy" period, the Policy allows you to
transfer cash value among the Sub-Accounts and, generally, to the Fixed
Account up to four times in a Policy year (twelve times in a Policy year
for Policies issued in New York) without our consent. We currently allow
12 transfers per Policy year in all states. Transfers and allocations
involving the Fixed Account are subject to some limits. (See "Transfer
Option" and "The Fixed Account--Policy Transactions".)
--A loan privilege and a partial surrender feature are available. (See "Loan
Provision" and "Partial Surrender".)
A-5
<PAGE>
--Death benefits paid to the beneficiary generally are not subject to
Federal income tax. Under current law, undistributed increases in cash
value generally are not taxable to you. (See "Tax Considerations".)
--Loans, assignments and other pre-death distributions may have tax
consequences depending primarily on the amount which you have paid into
the Policy but also on any "material change" in the terms or benefits of
the Policy or any death benefit reduction. If premium payments, a death
benefit reduction, or a material change cause the Policy to become a
"modified endowment contract", then pre-death distributions (including
loans) will be included in income on an income first basis, and a 10%
penalty tax may be imposed on income distributed before the Policy Owner
attains age 59 1/2. Tax considerations may therefore influence the amount
and timing of premium payments and certain Policy transactions which you
choose to make. (See "Tax Considerations".)
--If the Policy is not a modified endowment contract, we believe that loans
under the Policy will generally not be taxable to you as long as the
Policy has not lapsed, been surrendered or terminated. With some
exceptions, other pre-death distributions under a Policy that is not a
modified endowment contract are includible in income only to the extent
they exceed your investment in the Policy. (See "Tax Considerations".)
--During the "Right to Return the Policy" period you can return the Policy
for a refund. (See "Right to Return the Policy".)
--Within 24 months after a Policy's date of issue, you may exercise the
Policy's 24 Month Right. If you do, we allocate all or part of your
Policy's cash value and future premiums to the Fixed Account. The purpose
of the 24 Month Right is to provide you with fixed Policy values and
benefits. (See "24 Month Right" for a description of this provision and
for a description of the variation which applies to Policies issued in
Maryland and New Jersey.)
In many respects the Policies are similar to fixed-benefit universal life
insurance. Like universal life insurance, the Policies offer death benefits
and provide flexible premiums, a cash value, and loan privileges.
The Policies are different from fixed-benefit universal life insurance in
that the death benefit may, and the cash value will, vary to reflect the
investment experience of the selected Sub-Accounts.
The Policies are designed to provide insurance protection. Although the
underlying mutual fund portfolios invest in securities similar to those in
which mutual funds available directly to the public invest, in many ways the
Policies differ from mutual fund investments. The main differences are:
--The Policy provides a death benefit based on our assumption of an
actuarially calculated risk.
--If the net cash value is not sufficient to pay a Monthly Deduction, the
Policy may lapse with no value unless you pay additional premiums. If the
Policy lapses when Policy loans are outstanding, adverse tax consequences
may result.
--In addition to sales charges, insurance-related charges not associated
with mutual fund investments are deducted from the premiums and values of
the Policy. These charges include various insurance, risk, administrative
and premium tax charges. (See "Charges and Expenses".)
--The Variable Account, not the Policy Owner, owns the mutual fund shares.
--Federal income tax liability on any earnings is deferred until you receive
a distribution from the Policy. Transfers from one underlying fund
portfolio to another do not incur tax liability under current law.
--Dividends and capital gains are automatically reinvested.
For a discussion of some of the uses of the Policies, see "Appendix D: Uses
of Life Insurance".
Availability of the Policy
The Policies are available for insureds from the age of one to 80 on an
underwritten basis and from the age of 20 to 70 on an automatic issue basis.
(We issue automatic issue Policies based on very limited underwriting
information. Automatic issue Policies are not available in New Jersey.) We may
consent to issue the Policies on insureds below the age of one. All persons
must meet our underwriting and other requirements.
A-6
<PAGE>
The minimum face amount available is $100,000 unless we consent to a lower
amount, but exceptions apply. The minimum face amount available is $50,000 in
business situations (situations in which two or more Policies, on more than
one life, are totally or partially funded, directly or indirectly, by an
employer) or for pension plans qualified under Section 401 of the Internal
Revenue Code ("tax-qualified pension plans"), in each case where the average
face amount is at least $100,000. Policies with a minimum face amount of
$50,000 may also be available for juvenile insureds in the state of New
Jersey.
Policy Charges
Premium-Based Charges. We deduct the following charges from premiums:
--A maximum sales charge of 4%. We currently intend to waive this charge on
premiums paid after the first 20 Policy years. In addition, we currently
intend to deduct this charge in any Policy year only until you have paid
an amount equal to 110% of a Target Premium, plus a portion of certain
rider premiums, in that Policy year. Premium payments during a Policy year
above that amount will not incur the sales charge. A 3% sales charge will
apply to larger Policies and to Policies sold in certain business
situations or to certain tax-qualified pension plans;
--A state premium tax charge of 2.5%;
--A charge for federal taxes of 1%.
Surrender Charge. The Surrender Charge includes:
--A deferred sales charge. This charge applies to a lapse, total or partial
surrender or face amount reduction during the first 11 Policy years. For
Policies covering insureds whose issue age is 55 or less at issue, the
maximum Deferred Sales Charge applies in Policy years three through five.
The maximum Deferred Sales Charge in those years equals 45% of one Target
Premium plus 13.5% of a second Target Premium and 13.5% of a third Target
Premium. After the fifth Policy year, the maximum Deferred Sales Charge
declines on a monthly basis until it reaches 0% in the last month of the
eleventh Policy year. If you lapse or surrender the Policy, or reduce its
face amount, in the first two Policy years, the maximum Deferred Sales
Charge in the first Policy year will be 25% of one Target Premium and in
the second Policy year will be 25% of one Target Premium plus 5% of a
second Target Premium. The charge may be less if the issue age is above
55.
--A deferred administrative charge. This charge applies to a lapse, total or
partial surrender or reduction in face amount during the first 11 Policy
years. This charge is $2.50 per $1,000 of face amount for the first Policy
year, and then reduces monthly until it reaches 0 at the end of the 11th
Policy year. The charge will be less if the issue age is greater than 65.
We deduct the Surrender Charge from the Policy's available cash value,
regardless of whether that cash value comes from premiums or investment
experience.
Monthly Deduction from Cash Value. We deduct certain charges from the cash
value:
--Monthly charge for the cost of insurance and for any benefits provided by
rider;
--Monthly administrative charge, currently equal to $0.06 per $1,000 of face
amount for the first Policy year and $0.02 per $1,000 thereafter
(guaranteed not to exceed $0.08 per $1,000 of face amount in the first
Policy year and $0.04 per $1,000 thereafter). On a current basis, we
intend not to charge more than $40 per month for the monthly
administrative charge after the first Policy year. For larger Policies and
Policies sold in certain business situations or to certain tax-qualified
pension plans the monthly administrative charge for the first Policy year
currently equals $0.05 per $1,000 of face amount rather than $0.06;
--Monthly minimum death benefit guarantee charge of $0.01 per $1,000 of face
amount;
--Monthly policy fee, currently equal to $4.50 per month (guaranteed not to
exceed $7.00 per month).
A-7
<PAGE>
Charges Deducted from the Variable Account and the Eligible Funds. The
following charges are deducted from the Variable Account and Eligible Fund
assets:
--Daily charge against the Sub-Account assets for our mortality and expense
risk, currently equal to an annual rate of .75% (guaranteed not to exceed
.90%);
--Daily charges against the Eligible Fund portfolios for investment advisory
services and fund operating expenses.
Currently, we do not charge the Variable Account for any federal income
taxes. We may, however, impose such a charge in the future.
See "Charges and Expenses".
A-8
<PAGE>
HOW THE POLICY WORKS
Premium Payments
. Flexible
. Planned premium options
-Minimum premium (in first three Policy years)
-Guaranteed Death Benefit B Premium (to age 80)
-Guaranteed Death Benefit A Premium (to age 100)(not available under
Policies issued in New York)
Charges from Premium Payments
. Sales Load: 4% (3% for certain larger Policies and Policies sold in certain
business situations or to certain tax-qualified pension plans). We intend
to waive after 20 policy yrs. We also intend to waive for premiums in a
Policy year above 110% of Target Premium (plus a portion of certain rider
premiums)
. State Premium Tax Charge: 2.5%
. Charge for Federal Taxes: 1%
Loans
. After the free look period, you may borrow a portion of your cash value
. Loan interest charge is 5.5%. We transfer loaned funds out of the Eligible
Funds into the General Account where we credit them with not less than 4.0%
interest. (Currently we intend to credit 5.25% interest after 15 Policy
years.)
Retirement Benefits
. Fixed settlement options are available for policy proceeds
Cash Values
. Net premium payments invested in your choice of Eligible Fund investments
or the Fixed Account (after an initial period in the Zenith Money Market
Sub-Account)
. The cash value reflects investment experience, interest, premium payments,
policy charges and any distributions from the Policy
. We do not guarantee the cash value invested in the Eligible Funds
. Any earnings you accumulate are generally free of any current income taxes
. You may change the allocation of future net premiums at any time. You may
currently transfer funds among investment options (and to the Fixed
Account) up to 12 times per policy year, after the free look period. We
limit the timing, frequency and amount of transfers from (and in some cases
to) the Fixed Account
. You may allocate your cash value among a maximum of ten accounts at any one
time
Death Benefit
. Level or Variable Death Benefit Options
. Guaranteed not to be less than face amount (less any loan balance) if Death
Benefit Guarantee is in effect
. Income tax free to named beneficiary
Daily Deductions from Assets
. Mortality and expense risk charges of .75% (guaranteed not to exceed .90%)
on an annual basis are deducted from the cash value
. Investment advisory fees and other expenses are deducted from the Eligible
Fund values
Beginning of Month Charges
. We deduct the cost of insurance protection (reflecting any substandard risk
or automatic issue rating) from the cash value each month
. Any Rider Charges
. Policy Fee: $4.50 (not to exceed $7.00) per month
. Minimum Death Benefit Guarantee Charge: $.01 per $1000 face amount monthly
. Administrative Charge: $.06 (guaranteed not to exceed $.08) per $1000 face
amount monthly (first year) and $.02 (guaranteed not to exceed $.04) per
$1000 face amount monthly (after first year). For certain larger Policies
and Policies sold in certain business situations or to certain
tax-qualified pension plans charge is currently $.05 per $1,000 in first
year.
Surrender Charges
. Deferred Sales Charge and Deferred Administrative Charge (see page A-16)
Living Benefits
. If policyholder has elected and qualified for benefits for disability and
becomes totally disabled, we will waive monthly charges during the period
of disability up to certain limits.
. You may surrender the Policy at any time for its cash surrender value
. Deferred income taxes, including taxes on amounts borrowed, become payable
upon surrender
. Grace period for lapsing with no value is 62 days from the first date in
which Monthly Deduction was not paid due to insufficient cash value
. Subject to our rules, you may reinstate a lapsed Policy within seven years
of date of lapse if it has not been surrendered
A-9
<PAGE>
Receipt of Communications and Payments at NELICO's Home Office
We will treat your request for a Policy transaction, or your submission of a
payment, as received by us if we receive a request conforming to our
administrative procedures or a payment at our Home Office before the close of
regular trading on the New York Stock Exchange on that day. If we receive it
after that time, or if the New York Stock Exchange is not open that day, then
we will treat it as received on the next day when the New York Stock Exchange
is open.
NELICO
NELICO was organized as a stock life insurance company in Delaware in 1980
and is licensed to sell life insurance in all states, the District of Columbia
and Puerto Rico. Originally, NELICO was a wholly-owned subsidiary of New
England Mutual Life Insurance Company ("New England Mutual"). On August 30,
1996, New England Mutual merged into MetLife, a mutual life insurance company
whose principal office is One Madison Avenue, New York, NY 10010. MetLife then
became the parent of NELICO. In connection with the merger, NELICO changed its
name from "New England Variable Life Insurance Company" to "New England Life
Insurance Company" and changed its domicile from the State of Delaware to the
Commonwealth of Massachusetts. NELICO's Home Office is now at 501 Boylston
Street, Boston, Massachusetts 02116. NELICO's mailing address is: P.O. Box
9116, Boston, Massachusetts 02117.
The following chart illustrates the relationship of NELICO, the Fixed
Account, the Variable Account and the Eligible Funds.
NELICO
(Insurance company subsidiary of MetLife)
We deduct charges.
We allocate net premiums and net unscheduled payments to your choice of
sub-accounts in the Variable Account or to the Fixed Account.
Premiums and Unscheduled Payments
Fixed Account
VARIABLE ACCOUNT
Zenith Capital Growth Sub-Account
Zenith Bond Income Sub-Account
Zenith Money Market Sub-Account
Zenith Managed Sub-Account
Zenith Stock Index Sub-Account
Zenith Growth and Income Sub-Account
Zenith Small Cap Sub-Account
Zenith Balanced Sub-Account
Zenith Equity Growth Sub-Account
Zenith Venture Value Sub-Account
Zenith Midcap Value Sub-Account
Zenith International Magnum Equity Sub-Account
Zenith Investors Sub-Account
Zenith Research Managers Sub-Account
Equity-Income Sub-Account
Overseas Sub-Account
High Income Sub-Account
Asset Manager Sub-Account
Sub-accounts buy shares of the Eligible Funds
NEW ENGLAND ZENITH FUND
Capital Growth Series
Back Bay Advisors Bond Income Series
Back Bay Advisors Money Market Series
Back Bay Advisors Managed Series
Westpeak Stock Index Series
Westpeak Growth and Income Series
Loomis Sayles Small Cap Series
Loomis Sayls Balanced Series
Alger Equity Growth Series
Davis Venture Value Series
Goldman Sachs Midcap Value Series
Morgan Stanley International Magnum Equity Series
MFS Investors Series
MFS Research Managers Series
VIP
Equity-Income Portfolio
Overseas Portfolio
High Income Portfolio
VIP II
Asset Manager Portfolio
Eligible Funds buy portfolio investments to support values and benefits of the
Policies.
A-10
<PAGE>
POLICY VALUES AND BENEFITS
Death Benefit
If the insured dies before the Maturity Date, we pay a death benefit to the
beneficiary.
Death Benefit Options. When you apply for a Policy, you choose between two
death benefit options.
The Option 1 (Face Amount) death benefit is equal to the face amount of the
Policy. The Option 1 death benefit is fixed, subject to increases required by
the Internal Revenue Code.
The Option 2 (Face Amount Plus Cash Value) death benefit is equal to the
face amount of the Policy, plus the Policy's cash value, if any. The Option 2
death benefit is also subject to increases required by the Internal Revenue
Code.
To meet the Internal Revenue Code's definition of life insurance, the death
benefit will not be less than a certain multiple of the Policy's cash value,
including the portion of any Monthly Deduction made for a period beyond the
date of death. (See Appendix F.) This means that, if the cash value grows to
certain levels, the death benefit increases to satisfy tax law requirements.
At that point, any payment you make into the Policy will increase the death
benefit by more than it increases the cash value. (See "Premiums".)
Minimum Guaranteed Death Benefit
The Policy provides two Minimum Guaranteed Death Benefits. (One of these,
Minimum Guaranteed Death Benefit A, is not available under Policies issued in
New York.) We determine whether a Minimum Guaranteed Death Benefit is in
effect on the first day of each Policy month. If a Minimum Guaranteed Death
Benefit is in effect, the Policy will not lapse even if the net cash value is
less than the Monthly Deduction for that month.
Generally, if you pay the required premium for a Minimum Guaranteed Death
Benefit each year, that Minimum Guaranteed Death Benefit will apply to your
Policy. The Guaranteed Death Benefit A and Guaranteed Death Benefit B premiums
are shown in Section 1 of your Policy and also appear in your personalized
illustration. IF YOU DO NOT PAY ONE OF THESE PREMIUMS IN A POLICY YEAR, OR IF
YOU MAKE CERTAIN POLICY TRANSACTIONS, YOU COULD LOSE THE MINIMUM GUARANTEED
DEATH BENEFIT ON A TEMPORARY OR PERMANENT BASIS.
--Loans. No Minimum Guaranteed Death Benefit applies to your Policy while a
Policy loan is outstanding. However, if the total premiums you have paid,
adjusted for interest and any partial surrenders, are sufficient, the
applicable Minimum Guaranteed Death Benefit will apply to the Policy once
the loan is repaid. (UNDER POLICIES ISSUED IN NEW JERSEY, a Minimum
Guaranteed Death Benefit MAY apply while a Policy loan is outstanding.)
--Other Policy Transactions. In addition, if you reduce the Policy's face
amount or make a partial surrender which reduces the face amount, or
reduce or delete a rider benefit from your Policy, or if your Policy's
rating classification is improved, you may lose the death benefit
guarantee. Whether a guarantee still applies depends on the total premiums
you have paid and the amount you have withdrawn from the Policy by partial
surrenders. We recalculate the minimum death benefit premiums shown in
Section 1 of your Policy following these transactions and also following
an increase in rider coverage. (See "Premiums" below.) Federal tax law
limits the amount of premiums that you can pay into the Policy. If, after
one of these transactions, the Federal tax law limits the minimum death
benefit premium for your Policy to an amount less than zero, your Policy
will lose its death benefit guarantee permanently.
--Skipping a Premium. If you do not pay a minimum death benefit premium in a
Policy year, a Minimum Guaranteed Death Benefit may still apply to your
Policy, depending on the total premiums paid and partial surrenders made.
However, if you lose a death benefit guarantee because of insufficient
premium payments, Federal tax law limits may prevent you from paying
enough premiums in future Policy years to regain the guarantee. Although
you may be able to regain the Guaranteed Minimum Death Benefit B, it is
unlikely that you will be able to regain the Guaranteed Minimum Death
Benefit A. (See "Minimum Guaranteed Death Benefit A" and "Minimum
Guaranteed Death Benefit B" below for more information.)
A-11
<PAGE>
MINIMUM GUARANTEED DEATH BENEFIT A. We determine if Minimum Guaranteed Death
Benefit A is in effect on the first day of each Policy month the Policy is in
force, until the Maturity Date (age 100 of the insured). This Benefit is in
effect if the total of:
(1) premiums paid under the Policy in each prior Policy year accumulated
at a 4% rate from the first day of the year of payment to the most recent
Policy anniversary, less partial surrenders accumulated at a 4% rate from
the date of surrender to the most recent Policy anniversary, plus
(2) premiums paid less partial surrenders in the current Policy year, is
at least equal to:
(3) the amount shown in the Table of Guaranteed Death Benefit A Premiums
Accumulated at 4% for the prior Policy year plus 1/12 of the Benefit A
Premium for each Policy month of the current Policy year, up to and
including the month for which the Monthly Deduction is being processed, and
there is no outstanding Policy loan.
(UNDER POLICIES ISSUED IN NEW JERSEY the guarantee may apply while a loan is
outstanding. For those Policies, we subtract the amount of the loan plus
accrued interest from premiums paid in the current Policy year when we apply
this test.) For these purposes, we treat premiums paid within 20 days prior to
a Policy anniversary as if paid in the next Policy year.
The Table of Guaranteed Death Benefit A Premiums Accumulated at 4% assumes
that the Guaranteed Death Benefit A Premium shown in your Policy is paid on
the first day of each Policy year and accumulates at a 4% rate per year.
THE MINIMUM GUARANTEED DEATH BENEFIT A IS NOT AVAILABLE UNDER POLICIES
ISSUED IN NEW YORK.
MINIMUM GUARANTEED DEATH BENEFIT B. We determine if Minimum Guaranteed Death
Benefit B is in effect on the first day of each Policy month the Policy is in
force, until the LATER of: the date the insured reaches age 80, or 20 years
from the Policy Date, but no later than the Maturity Date of the Policy (age
100 of the insured). This Benefit is in effect if the total of:
(1) premiums paid under the Policy in each prior Policy year accumulated
at a 4% rate from the first day of the year of payment to the most recent
Policy anniversary, less partial surrenders accumulated at a 4% rate from
the date of surrender to the most recent Policy anniversary, plus
(2) premiums paid less partial surrenders in the current Policy year, is
at least equal to:
(3) the amount shown in the Table of Guaranteed Death Benefit B Premiums
Accumulated at 4% for the prior Policy year plus 1/12 of the Benefit B
Premium for each Policy month of the current Policy year, up to and
including the month for which the Monthly Deduction is being processed, and
there is no outstanding Policy loan.
(UNDER POLICIES ISSUED IN NEW JERSEY the guarantee may apply while a loan is
outstanding. For those Policies, we subtract the amount of the loan plus
accrued interest from premiums paid in the current Policy year when we apply
this test.) For these purposes, we treat premiums paid within 20 days prior to
a Policy anniversary as if paid in the next Policy year.
The Table of Guaranteed Death Benefit B Premiums Accumulated at 4% assumes
that the Guaranteed Death Benefit B Premium shown in your Policy is paid on
the first day of each Policy year and accumulates at a 4% rate per year.
UNDER POLICIES ISSUED IN NEW YORK, we call the Minimum Guaranteed Death
Benefit B the "No Lapse Guarantee Death Benefit".
DEATH PROCEEDS PAYABLE
The death proceeds we pay are equal to the death benefit on the date of the
insured's death, reduced by any outstanding loan and accrued loan interest on
that date and by any unpaid Monthly Deduction for the period before that date.
We increase the death proceeds (1) by any rider benefits payable and (2) by
any Monthly Deduction made for a period beyond the date of death, unless we
already included this amount in the death benefit calculation because of
Federal tax law requirements (see "Death Benefit Options" above and Appendix
F).
We may adjust the death proceeds if the insured's age or sex was misstated
in the application, if death results from the insured's suicide within two
years (less in some states) from the Policy's date of issue, or if a rider
limits the death benefit. (See "Limits to NELICO's Right to Challenge the
Policy".)
CHANGE IN DEATH BENEFIT OPTION
After the first Policy year, you may change your death benefit option by
written request to our Home Office. The request will be effective on the date
we receive it. A change in death benefit option may have tax consequences.
(See "Tax Considerations".)
A-12
<PAGE>
If you change from Option 1 (Face Amount) to Option 2 (Face Amount Plus Cash
Value), we reduce the Policy's face amount if necessary so that the death
benefit is the same immediately before and after the change. A face amount
reduction below $250,000 requires our consent; however, special rules apply
for some business situations. We may also decrease any rider benefits under
the Policy. A partial surrender of cash value may be necessary to meet Federal
tax law limits on the amount of premiums that you can pay into the Policy.
There is no Surrender Charge for a face amount reduction or partial surrender
on a change from Option 1 to Option 2.
If you change from Option 2 (Face Amount Plus Cash Value) to Option 1 (Face
Amount), we increase the Policy's face amount, if necessary, so that the death
benefit is the same immediately before and after the change.
Extending the Maturity Date
If approved in your state, we will issue or amend your Policy with an
extended maturity endorsement. If endorsed, the Policy will not mature until
the date of the insured's death. On and after the original Maturity Date, the
death benefit generally equals the cash value on the date of death. There is
an exception if, on the original Maturity Date, your premiums paid (with
interest at 4%), less partial surrenders (with interest at 4%) are at least
equal to the "Age 100 Amount" shown in the Policy. In this case, the death
benefit on and after the original Maturity Date equals the GREATER of (1) the
cash value on the date of death and (2) the Policy face amount. We base the
Age 100 Amount on the Guaranteed Death Benefit B Premium being paid each
Policy year until the original Maturity Date (rather than until age 80 of the
insured). Certain Policy transactions--reductions in face amount, reduction or
deletion of a rider benefit, or improvement in rating class--could prevent you
from paying sufficient premiums to reach the Age 100 Amount.
Currently, we do not make Monthly Deduction charges after the original
Maturity Date. You cannot pay premiums after the original Maturity Date unless
necessary to prevent lapse of the Policy. All Policy riders (except the
extended maturity endorsement) terminate on the original Maturity Date.
The tax consequences of the endorsement are unclear, and you should consult
a tax advisor about them. For more information about the extended maturity
option, contact us or your registered representative.
Cash Value
Your Policy's total cash value includes its cash value in the Variable
Account and in the Fixed Account. If you have a Policy loan, the cash value
also includes the amount we hold in our general account as a result of the
loan. The cash value reflects:
--net premium payments
--the net investment experience of the Policy's sub-accounts
--interest credited to cash value in the Fixed Account
--interest credited to amounts held in the general account for a Policy loan
--the death benefit option you choose
--Policy charges
--partial surrenders
--transfers among the sub-accounts and Fixed Account
--the premium payment schedule (annual vs. quarterly, for example) you
choose
We pay you the NET cash value if you surrender the Policy. It equals the
cash value minus any outstanding Policy loan (plus interest) and any Surrender
Charge that applies. We add to the net cash value the cost of insurance charge
for the remainder of the month. If you surrender in the grace period, we
reduce the net cash value by the Monthly Deduction that applies to the date of
surrender. (See "Loan Provision", "Surrender Charge", and "Monthly Deduction
from Cash Value".)
The Policy's cash value in the Variable Account may increase or decrease
daily depending on net investment experience. Poor investment experience can
reduce the cash value to zero. YOU HAVE THE ENTIRE INVESTMENT RISK FOR THE
CASH VALUE IN THE VARIABLE ACCOUNT.
A-13
<PAGE>
Net Investment Experience
The net investment experience of the Sub-Accounts affects the Policy's cash
value and, in some cases, the death benefit. We determine the net investment
experience of each Sub-Account as of the close of regular trading on the New
York Stock Exchange on each day when the Exchange is open for trading.
A Sub-Account's net investment experience for any period is based on the
investment experience of the underlying Eligible Fund shares for the same
period, reduced by the charges against the Sub-Account (currently only the
mortality and expense risk charge) for that period.
The investment experience of the Eligible Fund shares for any period is the
increase or decrease in their net asset value for the period, increased by the
amount of any dividends or capital gains distributions on the shares during
the period. Dividends and capital gains distributions on Eligible Fund shares
are reinvested in additional shares of the Eligible Fund.
Allocation of Net Premiums
Your cash value is held in the general account of NELICO or an affiliate
until we issue the Policy. We credit the first net premium with net investment
experience equal to that of the Zenith Money Market Sub-Account from the
investment start date until the later of 45 days after the date Part I of the
application is signed or 10 days after we mail the Notice of Withdrawal Right.
(The "investment start date" is defined below.) Then, we allocate the cash
value to the Sub-Accounts and/or the Fixed Account as you choose. You can
allocate to a maximum of ten accounts (including the Fixed Account) at any one
time.
Amount Provided for Investment under the Policy
Investment Start Date. The investment start date is the latest of: the date
when we first receive a premium payment for the Policy, the date Part II of
the Policy application is signed and the Policy Date. (For this purpose,
receipt of the premium payment means receipt by your registered
representative, if the payment is made with the application; otherwise, it
means receipt by a NELICO agency.)
Premium with Application. If you make a premium payment with the
application, the Policy Date is generally the later of the date Part II of the
application is signed and receipt of the premium payment. In that case, the
Policy Date and investment start date are the same. The amount of premium paid
with the application must be at least 10% of the annual Planned Premium for
the Policy. You may only make one premium payment before the Policy is issued.
If you make a premium payment with the application, we will cover the
insured under a temporary insurance agreement for a limited period that
usually begins when we receive the premium for the Policy (or, if later, on
the date when Part II of the application is signed). The maximum temporary
coverage is the lesser of the amount of insurance applied for and $500,000 for
standard and preferred risks ($250,000 for substandard risks and $50,000 for
persons who are determined to be uninsurable). These provisions vary in some
states.
If we issue a Policy, Monthly Deductions begin from the Policy Date, even if
we delayed the Policy's issuance for underwriting. The deductions are for the
face amount of the Policy issued, even if the temporary insurance coverage
during underwriting was for a lower amount. If we decline an application, we
refund the premium payment made.
Premium on Delivery. If you pay the initial premium on delivery of the
Policy, the Policy Date is usually five days after issue. The investment start
date is the later of the Policy Date and the date we received the premium.
Monthly Deductions begin on the Policy Date. We credit interest at a 4% net
rate on the net Minimum Premium (see "Premiums") for any period between the
Policy Date and the investment start date. Insurance coverage under the Policy
begins when we receive the Minimum Premium due for the first quarter (or on
receipt of the number of monthly payments due under NELICO's Master Service
Account arrangement.)
Backdating. We may sometimes backdate a Policy, if you request, by assigning
a Policy Date earlier than the date the application is signed. You may wish to
backdate so that you can obtain lower cost of insurance rates, based on a
younger insurance age. Backdating in some cases causes a higher Surrender
Charge if it results in the Surrender Charge being based on a lower age
bracket. (See "Surrender Charge".) For a backdated Policy, you must also pay
the Minimum Premium payable
A-14
<PAGE>
for the period between the Policy Date and the investment start date. As of
the investment start date, we allocate to the Policy those net premiums,
adjusted for monthly Policy charges and interest at a 4% net rate for that
period.
Right to Return the Policy
You may cancel the Policy within 45 days after the date Part 1 of the
application is signed, within 10 days (more in some states) after you receive
the Policy or within 10 days after we mail the Notice of Withdrawal Right,
whichever is latest. You may return the Policy to us or your registered
representative. Insurance coverage ends as soon as you return the Policy
(determined by postmark, if the Policy is mailed). If you cancel the Policy,
we refund any premiums paid (or any other amount that is required by state
insurance law).
State Variations
Certain Policy features, such as the "Right to Return the Policy", may vary
by state. You should read the Policy carefully for any variations in your
state.
CHARGES AND EXPENSES
The amount of a charge may not necessarily correspond to the costs of the
services or benefits that are implied by the name of the charge or that are
associated with the particular Policy. For example, the sales charge and
Deferred Sales Charge may not fully cover all of our sales and distribution
expenses, and we may use proceeds from other charges, including the mortality
and expense risk charge, to help cover those expenses.
Deductions from Premiums
We deduct a 4% sales charge from premiums. We currently intend to waive the
charge:
--on all premiums after the 20th Policy year
--on premiums paid in a Policy year that are in excess of 110% of a Target
Premium, plus a portion of certain rider premiums.
For these purposes, we consider premiums we receive during the twenty days
prior to a Policy anniversary as paid in the next Policy year. (This rule does
not apply to premiums paid through our Master Service Account arrangement,
described in "Premiums".)
We have the right not to waive the charge or to resume the charge in either
situation. The "target premium" amount that appears on personalized
illustrations of the Policy is the amount currently subject to the sales
charge.
The sales charge is 3% rather than 4% for:
--Policies used in a business situation (defined in "Availability of the
Policy") or a tax-qualified pension plan where either (1) the average face
amount is at least $500,000 or (2) the Policies are issued on the lives of
at least 25 persons and the average face amount is at least $250,000.
--All other Policies with a face amount of at least $500,000.
The Target Premium varies by issue age, sex and underwriting class of the
insured and the Policy's face amount. (To determine the Target Premium, we use
the nonsmoker aggregate or nonsmoker substandard classes for all nonsmokers.
See "Monthly Charges for the Cost of Insurance" below.)
During the first 11 Policy years (less for older insureds), if you surrender
or lapse the Policy, reduce the face amount or make a partial surrender that
reduces the face amount, a Deferred Sales Charge also applies. (See "Surrender
Charge" below.)
We may reduce sales charges for Policies sold to some group or sponsored
arrangements. We offer a program under which you may exchange certain fixed-
benefit life insurance policies that New England Mutual issued for the
Policies without a deduction for the sales charge, state premium tax and
federal premium tax charges (see below) from the amount of cash value that you
transfer to the Policy. Eligibility conditions apply. Your registered
representative can advise you regarding terms and availability of the program.
A-15
<PAGE>
State Premium Tax Charge. We deduct 2.5% from each premium for state premium
taxes and administrative expenses. Premium taxes vary from state to state and
the 2.5% charge reflects an average. Administrative expenses covered by this
charge include those related to premium tax and certain other state filings.
Federal Premium Tax Charge. We deduct 1% from each premium for our federal
income tax liability related to premiums.
Example: The following chart shows the net amount that we would allocate
to the Variable Account assuming a premium payment of $3,000 and that 110%
of the Policy's Target Premium equals $2,000.
<TABLE>
<CAPTION>
Net
Premium Premium
------- -------
<C> <C> <S>
$3,000 $2,000
- 150 (7.5% X 2,000 = total sales and premium tax charge up to
110% of the Target Premium)
------
$1,850
$1,000
- 35 (3.5% X 1,000 = total sales and premium tax charge on
payments in excess of 110% of
------
$ 965 the Target Premium)
$1,850
+ 965
------
$2,815 Net Premium
------
</TABLE>
We intend to waive the 4% sales charge on premiums paid after the 20th
Policy year. In that case, the net premium in this example would be $3,000 -
105 (3.5% X 3,000) or $2,895.
Surrender Charge
If, during the first eleven policy years, you surrender or lapse your
Policy, reduce the face amount, or make a partial surrender that reduces the
face amount, then we will deduct a Surrender Charge from the cash value. (For
insureds whose issue age is 66 to 75 at issue of the Policy, the Surrender
Charge period is nine years, and for insureds whose issue age is 76 to 80,
five years.) The Surrender Charge includes a Deferred Sales Charge and a
Deferred Administrative Charge. The maximum Surrender Charge is shown in your
Policy.
Deferred Sales Charge. We base the Deferred Sales Charge on a percentage of
the Target Premium.
The Deferred Sales Charge that applies DURING THE FIRST POLICY YEAR is equal
to 25% of premiums paid up to one Target Premium. The Deferred Sales Charge
DURING THE SECOND POLICY YEAR is equal to 25% of premiums paid up to one
Target Premium plus 5% of additional premiums paid up to a second Target
Premium. AS DESCRIBED BELOW, AFTER THE SECOND POLICY YEAR, THE MAXIMUM
DEFERRED SALES CHARGE INCREASES SUBSTANTIALLY.
For Policies which cover insureds whose issue age is 55 or less at issue,
the GREATEST Deferred Sales Charge applies if you lapse or surrender, or
reduce the face amount, IN POLICY YEARS THREE THROUGH FIVE. The Deferred Sales
Charge in these years equals 45% of actual premiums paid up to one Target
Premium, plus 13.5% of additional premiums paid in excess of one Target
Premium up to a second Target Premium, plus 13.5% of additional premiums paid
in excess of two Target Premiums up to a third Target Premium. After the fifth
Policy year, the maximum Deferred Sales Charge declines on a monthly basis
until it reaches 0% in the last month of the eleventh Policy year.
A-16
<PAGE>
The table below shows the maximum Deferred Sales Charge that applies to
Policies covering insureds whose issue age is 55 or less at issue, and assumes
that one Target Premium per year is paid under the Policy. The table shows the
charge, expressed as a percentage of total Target Premiums paid to date, if
the lapse, surrender or face reduction occurs at the end of each of the Policy
years shown.
<TABLE>
<CAPTION>
The Maximum Deferred
Sales Charge is the Following
Percentage of Total Target
For Policies which are Premiums Paid to Date of
Surrendered, Lapsed or Surrender, Lapse, or
Reduced During Face Amount Reduction
---------------------- -----------------------------
<S> <C> <C>
Entire Policy Year 3 24.00%
4 18.00%
5 14.40%
Last Month of Policy
Years 6 10.00%
7 6.86%
8 4.50%
9 2.67%
10 1.20%
11 0.00%
</TABLE>
For insureds whose issue age is above 55 at issue, the Deferred Sales Charge
percentages are less than or equal to those described above, with the maximum
charge occurring in Policy years three through five for insureds with an issue
age up through 65, in Policy years two through four for insureds with an issue
age from 66 through 75, and in Policy year two for insureds with an issue age
above 75.
In the case of a partial surrender or reduction in face amount, we deduct
any Deferred Sales Charge that applies from the Policy's remaining cash value
in an amount that is proportional to the amount of the Policy's face amount
surrendered. (See "Partial Surrender".) The charge reduces the Policy's cash
value in the Sub-Accounts and the Fixed Account in proportion to the amount of
the Policy's cash value in each.
Deferred Administrative Charge. The table below shows the Deferred
Administrative Charge deducted if you totally or partially surrender, lapse or
reduce the face amount of the Policy during the first eleven Policy years.
<TABLE>
<CAPTION>
For Policies which are
Surrendered, Lapsed Deferred Administrative
or Reduced During the Charge per $1,000 of
Policy Year Shown Face Amount
---------------------- -----------------------
<S> <C> <C>
Entire Policy year 1 $2.50
Last Month of Policy Year* 2 2.25
3 2.00
4 1.75
5 1.50
6 1.25
7 1.00
8 0.75
9 0.50
10 0.25
11 0.00
</TABLE>
- --------
* The charge declines monthly after the end of the first Policy year.
For insureds whose issue age is above 65 at issue, the Deferred
Administrative Charge is less than or equal to that in the table above.
A-17
<PAGE>
Monthly Deduction from Cash Value
On the first day of each Policy month, starting with the Policy Date, we
deduct the "Monthly Deduction" from your cash value.
--If your Policy is protected against lapse by a Minimum Death Benefit
Guarantee or the three year Minimum Premium guarantee, we make the
Monthly Deduction each month unless the cash value equals zero. (See
"Premiums".)
--If you do not have a Minimum Death Benefit Guarantee and the three year
Minimum Premium guarantee is not in effect, we make the Monthly Deduction
as long as the net cash value is large enough to cover the entire Monthly
Deduction. If it is not large enough, the Policy will be in default and
may lapse. (See "Lapse and Reinstatement".)
The Monthly Deduction reduces the cash value in each Sub-Account of the
Variable Account and in the Fixed Account in proportion to the cash value in
each.
The Monthly Deduction includes the following charges:
Policy Fee. The Policy fee is currently equal to $4.50 per month (guaranteed
not to exceed $7.00 per month).
Administrative Charge. The Administrative Charge is currently equal to $0.06
per $1,000 of Policy face amount in the first Policy year and $0.02 per $1,000
of Policy face amount thereafter (guaranteed not to exceed $0.08 per $1,000 of
face amount in the first Policy year and $0.04 per $1,000 of face amount
thereafter).
Currently we intend not to charge more than $40 per month for the
Administrative Charge after the first Policy year. This means that after the
first year the charge will not apply to the portion of a Policy's face amount
above $2 million.
The Administrative Charge is currently $0.05 per $1,000 of face amount
rather than $0.06 for:
--Policies used in a business situation (defined in "Availability of the
Policy") or a tax-qualified pension plan, where either (1) the average
face amount is at least $500,000 or (2) the Policies are issued on the
lives of at least 25 persons and the average face amount is at least
$250,000.
--All other Policies with a face amount of at least $500,000.
Minimum Death Benefit Guarantee Charge. The minimum death benefit guarantee
charge is $0.01 per $1,000 of Policy face amount. (See "Minimum Guaranteed
Death Benefit".)
Monthly Charges for the Cost of Insurance. This charge covers the cost of
providing insurance protection under your Policy. The cost of insurance charge
for a Policy month is equal to the "amount at risk" under the Policy,
multiplied by the cost of insurance rate for that Policy month. We determine
the amount at risk on the first day of the Policy month after we process the
Monthly Deduction. The amount at risk is the amount by which the death benefit
(discounted at the monthly equivalent of 4% per year) exceeds the Policy's
cash value. The cost of insurance rate for your Policy changes from month to
month.
The guaranteed cost of insurance rates for a Policy depend on the insured's
--underwriting class
--age on the first day of the Policy year
--sex (if the Policy is sex-based).
The current cost of insurance rates will also depend on
--the insured's age at issue
--the Policy year
--the face amount (for Policies not sold in a business situation or to a
tax-qualified pension plan)
--the average face amount sold to the group and possibly the number of
lives in the group (for Policies sold in a business situation or to a
tax-qualified pension plan).
A-18
<PAGE>
We guarantee that the rates will not be higher than rates based on
--the 1980 Commissioners Standard Ordinary Mortality Tables (the "1980 CSO
Tables") with smoker/nonsmoker modifications, for Policies issued on non-
juvenile insureds (age 20 and above at issue)
--the 1980 CSO Tables, for Policies issued on juvenile insureds (below age
20 at issue).
The actual rates we use may be lower than the maximum rates, depending on
our expectations about our future mortality and expense experience, lapse
rates and investment earnings. We review the adequacy of our cost of insurance
rates periodically and may adjust them. Any change will apply prospectively.
The underwriting classes we use are
--for Policies issued on non-juvenile insureds: smoker standard, smoker
substandard, nonsmoker preferred, nonsmoker standard, nonsmoker aggregate,
nonsmoker substandard and automatic issue
--for Policies issued on juvenile insureds: standard and substandard.
Substandard and automatic issue ratings result in higher cost of insurance
deductions. We base the guaranteed maximum mortality charges for substandard
ratings on multiples of the 1980 CSO Tables. (See below for a discussion of
automatic issue Policies.)
The three standard nonsmoker classes are available as follows:
--nonsmoker preferred and nonsmoker standard, for Policies with face amounts
of $250,000 or more where the issue age is 20 through 75
--nonsmoker aggregate, for Policies with face amounts below $250,000 and for
all Policies where the issue age is above 75.
Of the three standard nonsmoker classes, the nonsmoker preferred class
generally offers the best current cost of insurance rates and the nonsmoker
standard class generally offers the least favorable current cost of insurance
rates.
Cost of insurance rates are generally lower for nonsmokers than for smokers
and generally lower for females than for males. Within a given underwriting
class, cost of insurance rates are generally lower for insureds with lower
issue ages. Where required by state law, and for Policies sold in connection
with some employee benefit plans, cost of insurance rates (and Policy values
and benefits) do not vary based on the sex of the insured.
Currently, the face amount of a Policy or the average Policy face amount for
a group may affect a Policy's cost of insurance rates. The current cost of
insurance rates will be lower for a particular insured if:
--For a Policy not used in a business situation or in a tax-qualified
pension plan, the Policy face amount is at least $500,000.
--For a Policy used in a business situation or in a tax-qualified pension
plan, either (1) the average face amount is at least $500,000, or (2) the
Policies are issued on the lives of at least 25 persons and the average
face amount is at least $250,000.
We may offer Policies on an automatic issue basis to certain group or
sponsored arrangements. We issue these Policies up to predetermined face
amount limits. Because we issue these Policies based on minimal underwriting
information, they may present a greater mortality cost to us than Policies in
a standard class. Therefore, we deduct an additional insurance charge from an
automatic issue Policy's cash value. The additional charge varies based on the
issue age of the insured. For some group or sponsored arrangements, it may
also vary based on the size of the group, the total premium for the group, and
certain characteristics of the group members. The total guaranteed maximum
monthly cost of insurance charges, including the additional charge for
automatic issue status, exceed charges based on 100% of the 1980 CSO Tables.
The underlying cost of insurance rates for automatic issue Policies vary
based on whether the insured is a smoker or nonsmoker, and the preferred
nonsmoker class is not available. The current cost of insurance rates do not
vary by individual Policy face amount but may be lower if the members of the
group or sponsored arrangement have certain characteristics, the Policies are
issued on at least 25 lives, the face amount of each Policy is at least
$100,000 and the average face amount is at least $250,000.
A-19
<PAGE>
Some group or sponsored arrangements may be eligible to purchase Policies on
a simplified underwriting basis. They may elect simplified underwriting
instead of automatic issue or for amounts of insurance above our automatic
issue limits. However, they may not choose automatic issue for some members of
the group and simplified underwriting for others. There is no extra insurance
charge for Policies issued on a simplified underwriting basis. The preferred
nonsmoker class is not available for these Policies.
Charges for Additional Benefits and Services. We charge for the cost of any
additional rider benefits as described in the rider form. We also may charge
you a nominal fee, which we will bill directly to you, if you request a Policy
re-issue or re-dating.
Charges Against the Eligible Funds and the Sub-Accounts of the Variable
Account
Mortality and Expense Risk Charge. We charge the Sub-Accounts of the
Variable Account for our mortality and expense risks. Currently, the charge is
made daily at an annual rate of .75% of the Sub-Accounts' assets. We have the
right to increase the charge, up to a maximum annual rate of .90%. The
mortality risk we assume is that insureds may live for shorter periods of time
than we estimated. The expense risk is that our costs of issuing and
administering the Policies may be more than we estimated.
Charges for Income Taxes. We currently do not charge the Variable Account
for income taxes, but in the future we may make such a charge, if appropriate.
We have the right to make a charge for any taxes imposed on the Policies in
the future. (See "Charge for NELICO's Income Taxes".)
Eligible Fund Expenses. Charges for investment advisory fees and other
expenses are deducted from the assets of the Eligible Funds.
The following table shows the annual operating expenses for each series,
based on actual expenses for 1998, (for the two MFS Series, anticipated
expenses for 1999), after any applicable expense cap or expense deferral
arrangement:
Annual Operating Expenses
(as a percentage of average net assets after any expense cap)
<TABLE>
<CAPTION>
Back Back
Bay Bay Back Westpeak Loomis
Advisors Advisors Bay Westpeak Growth Sayles
Capital Bond Money Advisors Stock and Small
Growth Income Market Managed Index Income Cap
Series Series Series Series Series Series Series*
------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .63% .40% .35% .50% .25% .70% 1.00%
Other Expenses.......... .03% .08% .10% .08% .12% .08% --
--- --- --- --- --- --- ----
Total Series Operating
Expenses............. .66% .48% .45% .58% .37% .78% 1.00%
</TABLE>
Annual Operating Expenses
(as a percentage of average net assets after expense deferral)
<TABLE>
<CAPTION>
Goldman Morgan
Sachs Loomis Stanley Davis Alger MFS
Midcap Sayles International Venture Equity MFS Research
Value Balanced Magnum Value Growth Investors Managers
Series Series Equity Series* Series Series Series* Series*
------- -------- -------------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.......... .75% .70% .90% .75% .75% .75% .75%
Other Expenses.......... .15% .12% .40% .08% .08% .15% .15%
--- --- ---- --- --- --- ---
Total Series Operating
Expenses............. .90% .82% 1.30% .83% .83% .90% .90%
</TABLE>
- --------
* Without the applicable expense cap or expense deferral arrangement
(described below), Total Series Operating Expenses for the year ended
December 31, 1998 would have been: Loomis Sayles Small Cap Series, 1.10%;
and Morgan Stanley International Magnum Equity Series, 1.40%. Without the
expense deferral arrangement, we estimate that Total Series Operating
Expenses for the MFS Investors Series and MFS Research Managers Series for
the year ended December 31, 1999 would be 1.04%, each, on an annualized
basis.
A-20
<PAGE>
Our affiliate, New England Investment Management, Inc. (formerly known as
TNE Advisers, Inc.), advises the series of the Zenith Fund except for the
Capital Growth Series. New England Investment Management voluntarily limits
the expenses of these series with either an expense cap or expense deferral
arrangement, as shown in the chart above. Under the expense cap, New England
Investment Management bears expenses of a series (other than the management
fee) that exceed 0.15% of average daily net assets (in the case of the Loomis
Sayles Small Cap Series, expenses that exceed 1.00% of average daily net
assets). Under the expense deferral, New England Investment Management bears
expenses of a series (other than the management fee) that exceed a certain
limit in the year the series incurs them and charges those expenses to the
series in a future year if actual expenses of the series are below the limit.
New England Investment Management may end these expense limits at any time.
The investment adviser for VIP and VIP II is Fidelity Management & Research
Company ("FMR"). The Portfolios of VIP and VIP II pay investment management
fees to FMR and also bear other expenses. For the year ended December 31,
1998, the total operating expenses of the Portfolios, as a percentage of
Portfolio average net assets, were:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEES EXPENSE EXPENSES
- --------- ---------- ------- ------------
<S> <C> <C> <C>
VIP Equity-Income............................... .49% .09% .58%*
VIP Overseas.................................... .74% .17% .91%*
VIP High Income................................. .58% .12% .70%
VIP II Asset Manager............................ .54% .10% .64%*
</TABLE>
- --------
* Total annual expenses do not reflect certain expense reductions due to
directed brokerage arrangements and custodian interest credits. If we
included these reductions, total annual expenses would have been .57% for
VIP Equity-Income Portfolio, .89% for VIP Overseas Portfolio and .63% for
VIP II Asset Manager Portfolio.
Affiliates of FMR compensate NELICO and/or certain affiliates for
administrative, distribution, or other services relating to these Portfolios
of VIP and VIP II. This compensation is based on assets of the Portfolios
attributable to the Policies and certain other variable insurance products
that we and our affiliates issue.
GROUP OR SPONSORED ARRANGEMENTS
We may issue the Policies to group or sponsored arrangements, as well as on
an individual basis. A "group arrangement" includes a situation where a
trustee, employer or similar entity purchases individual Policies covering a
group of individuals. Examples of such arrangements are tax-qualified pension
plans and non-tax qualified deferred compensation plans. A "sponsored
arrangement" includes a situation where an employer or an association permits
group solicitation of its employees or members for the purchase of individual
Policies.
We may waive, reduce or vary any Policy charges under Policies sold to a
group or sponsored arrangement. We may also raise the interest rate credited
to loaned amounts under these Policies. The amount of the variations and our
eligibility rules may change from time to time. In general, they reflect cost
savings over time that we anticipate for Policies sold to the eligible group
or sponsored arrangements and relate to objective factors such as the size of
the group, its stability, the purpose of the funding arrangement and
characteristics of the group members. These variations of charges do not apply
to Policies sold in New York other than Policies sold to non-tax qualified
deferred compensation plans of various types. Consult your registered
representative for any variations that may be available and appropriate for
your case.
The United States Supreme Court has ruled that insurance policies with
values and benefits that vary with the sex of the insured may not be used to
fund certain employee benefit programs. Therefore, we offer Policies that do
not vary based on the sex of the insured to certain employee benefit programs.
We recommend that employers consult an attorney before offering or purchasing
the Policies in connection with an employee benefit program.
A-21
<PAGE>
PREMIUMS
Flexible Premiums
Within limits, you choose the amount and frequency of premium payments. You
select a Planned Premium schedule, which is a level amount. This schedule
appears in your Policy. Your Planned Premiums will not necessarily keep your
Policy in force. You may skip Planned Premium payments or make additional
payments. Additional payments could be subject to underwriting. No payment can
be less than $25 ($10 for payments made through the Master Service Account,
described below, or certain other monthly payment arrangements). We limit the
total of Planned Premiums and other payments to our published maximum.
You can pay Planned Premiums on an annual, semi-annual or quarterly schedule
or, with our consent, monthly. You can change your Planned Premium schedule by
sending your request to us. However, you cannot increase the amount of your
Planned Premium unless we consent, and we may require underwriting.
You may make payments by check or money order. We will send premium notices
for annual, semi-annual or quarterly Planned Premiums. You may also choose to
have us withdraw your premium payments from your bank checking account or New
England Cash Management Trust account. (This is known as the Master Service
Account arrangement.)
Federal tax law limits the amount of premiums that you can pay under the
Policy. In addition, if any payments under the Policy exceed the "7-pay test"
under Federal tax law, your Policy will become a "modified endowment contract"
and you may have more adverse tax consequences with respect to certain
distributions than would otherwise be the case if premium payments did not
exceed the "7-pay test". (See "Tax Considerations".) You need our consent if,
because of tax law requirements, a payment would increase the Policy's death
benefit by more than it would increase cash value. We may require evidence of
insurability before accepting the payment.
We allocate net payments to your Policy's Sub-Accounts as of the date we
receive the payment. (See "Receipt of Communications and Payments at NELICO's
Home Office".)
Under our current processing, we treat a payment first as a Planned Premium,
second as repayment of Policy loan interest due, and last as an unscheduled
payment, unless you instruct us otherwise in writing. (FOR POLICIES ISSUED IN
NEW YORK, we treat a payment as a Planned Premium when a Policy loan is
outstanding ONLY if the payment is in the exact amount of the Planned Premium
next due; otherwise, we treat it first as repayment of Policy loan interest
due, second as a Planned Premium, and last as an unscheduled payment.) We do
not treat a payment as repayment of a Policy loan unless you instruct us to.
If you have a Policy loan, it may be better to repay the loan than to make a
premium payment, because the premium payment is subject to sales and tax
charges, whereas the loan repayment is not subject to any charges. However,
repaying the loan instead of paying a premium could make your Policy
ineligible for a death benefit guarantee. (See "Loan Provision", "Deductions
from Premiums" and "Death Benefit".)
A-22
<PAGE>
Three types of premium payment levels can protect your Policy against
lapse (1) for the first three Policy years, (2) until age 80 of the insured,
and (3) until age 100 of the insured. (The guarantee to age 100 is not
available under Policies issued in New York.)
FIRST THREE POLICY YEARS--In general, if you pay the three year Minimum
Premium amount on time, the Policy will not lapse even if the net cash value
is less than the Monthly Deduction in any month. If (a) the total premiums
you have paid, less all partial surrenders and any outstanding Policy loan
balance, at least equal (b) the total monthly Minimum Premiums for the
Policy up to that Policy month, the Policy will not lapse. The guarantee
will not apply if you substitute the insured or reinstate the Policy. We
recalculate the Minimum Premium if (1) you reduce the face amount or make a
partial surrender that reduces the face amount, (2) you increase or decrease
rider coverage, or (3) the rating classification for your Policy is
improved. We base the Minimum Premium amount (shown in your Policy) on your
Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, current Policy charges and any riders to
the Policy.
TO MATURITY (AGE 100 OF THE INSURED)--Payment of the Guaranteed Death
Benefit A premium can guarantee that the Policy will stay in force until age
100 of the insured. Insufficient premium payments, a reduction in the face
amount or partial surrender that reduces the face amount, reduction or
deletion of a rider benefit, or improvement in rating classification of the
Policy could terminate this guarantee. See "Minimum Guaranteed Death
Benefit". We base this guaranteed minimum death benefit premium on the
Policy's face amount, the age, sex (unless unisex rates apply) and
underwriting class of the insured, the death benefit option chosen, the
guaranteed level of cost of insurance charges, the current level of other
Policy charges and any rider benefit selected. We recalculate this premium
following the same Policy transactions described above for a recalculation
of the three-year Minimum Premium amount. THIS GUARANTEED DEATH BENEFIT A
PREMIUM DOES NOT APPLY UNDER POLICIES ISSUED IN NEW YORK.
TO AGE 80 OF THE INSURED--Payment of the Guaranteed Death Benefit B
premium can guarantee that the Policy will stay in force until the later of
age 80 of the insured, or 20 years after issue, but no later than the
Maturity Date of the Policy (age 100 of the insured). Insufficient premium
payments, a reduction in the face amount or a partial surrender that reduces
the face amount, reduction or deletion of a rider benefit, or improvement in
the rating classification of the Policy could terminate this guarantee,
although termination for insufficient premium payments is less likely here
than in the case of the Guaranteed Death Benefit A premium. We base this
premium on factors similar to the Guaranteed Death Benefit A premium, but we
use the guaranteed level of both cost of insurance and other Policy charges
for coverage to that age. We recalculate the Guaranteed Death Benefit B
premium following the same Policy transactions described above for a
recalculation of the three-year Minimum Premium amount.
UNDER POLICIES ISSUED IN NEW JERSEY, if you have met the requirements for
the three-year Minimum Premium death benefit guarantee at the end of the
three year guarantee period, the Minimum Premium death benefit guarantee
will continue to apply during the fourth Policy year as long as (a) payments
made during that Policy year, less partial surrenders and loans made in that
year, equal (b) the guaranteed maximum Policy charges plus the applicable
Surrender Charge for the fourth Policy year. In addition, under Policies
issued in New Jersey, if at the end of the period for Minimum Guaranteed
Death Benefit B you have met the requirements for that guarantee, the
guarantee will continue to apply during the next Policy year as long as (a)
payments made during that Policy year, less partial surrenders and loans
made in that year, equal (b) the guaranteed maximum Policy charges for that
Policy year. If you make a Policy transaction that changes the amount of the
guaranteed maximum Policy charges for the year, then the amount needed to
preserve the death benefit guarantee for an extra Policy year will change
accordingly.
LAPSE AND REINSTATEMENT
LAPSE. Unless your Policy is protected by a guaranteed death benefit or
minimum premium guarantee, any month that your Policy's net cash value is not
large enough to cover a Monthly Deduction, your Policy will be in default.
Your Policy provides a 62 day grace period for payment of a premium large
enough to cover the Monthly Deduction and all deductions from the premium.
(FOR POLICIES ISSUED IN NEW JERSEY the amount due is the least of: a premium
large enough to cover the Monthly Deduction and all deductions from the
premium; a premium large enough to permit Minimum Guaranteed Death Benefit A
to be in effect; a premium large enough to permit Minimum Guaranteed Death
Benefit B to be in effect; and a premium large enough
A-23
<PAGE>
to permit the three-year Minimum Premium death benefit to be in effect.) We
will notify you of the amount due. You have insurance coverage during the
grace period, but if the insured dies before you have paid the premium, we
deduct from the death proceeds the unpaid Monthly Deduction for the period
prior to the date of death. If you have not paid the required premium by the
end of the grace period, your Policy will lapse without value.
Reinstatement. If your Policy has lapsed, you may reinstate it within seven
years after the date of lapse. If more than seven years have passed, or if you
have surrendered the Policy, you need our consent to reinstate. Reinstatement
in all cases requires payment of certain charges described in the Policy and
usually requires evidence of insurability that is satisfactory to us.
If we deducted a Surrender Charge on lapse, we credit it back to the
Policy's cash value on reinstatement. The Surrender Charge on the date of
reinstatement is the same as it was on the date of lapse. When we determine
the Surrender Charge and other charges that vary by duration of the Policy
(unlike, for example, cost of insurance charges that vary by age of the
insured), we do not count the amount of time that a Policy was lapsed.
OTHER POLICY FEATURES
Increase in Face Amount
The Policy provides that, after the first Policy year, you may increase the
face amount. Currently, we administer requests for increases in face amount by
issuing a new Policy with a face amount equal to the requested increase in
face amount (an "Increase Policy"). Under Increase Policies, we generally
waive the monthly Policy Fee; and we usually base the monthly administrative
charge on the Policy year of the initial Policy. Otherwise, an Increase Policy
is subject to the same terms and conditions as any other Policy except that
the minimum required face amount for an Increase Policy is $10,000, and you
may reduce the face amount of the Increase Policy to below $10,000.
We may in the future administer face amount increases as increases in the
face amount of the initial Policy. A maximum Face Amount Increase
Administrative Charge of $2.50 per $1,000 of the face amount increase will
apply to each increase when it takes effect. Certain terms and conditions will
apply to increases in face amount, as outlined in the Policy. A separate
Target Premium amount will apply to the face amount increase, based on the
insured's age and underwriting class at the time of the increase. The Policy's
sales charge and Surrender Charge scales will apply separately to each face
amount segment, starting with the effective date of the face amount segment.
Monthly Deductions (including cost of insurance charges) will be based on the
increase in coverage and will reflect, in whole or in part, any change in risk
classification of the insured, according to our rules. (See "Charges and
Expenses".) An increase in face amount may have tax consequences.
When increases in the face amount of the initial Policy are available, we
will give Policy Owners who have purchased Increase Policies an opportunity to
consolidate coverage under initial and Increase Policies. The Face Amount
Increase Administrative Charge will not apply to the consolidation.
Consolidation of coverage may raise issues under federal tax law. You should
consult a tax advisor before requesting a consolidation.
For Policies issued in some business situations on an automatic issue basis,
we may offer annual face amount increases which are related to increases in
salary or which are based on a fixed annual percentage (the "Salary Refresh"
program). We determine limits on the annual and/or total amount of face
increases per Policy that we will permit on an automatic issue basis at issue.
Increases over this limit will require underwriting. The Salary Refresh
program is not available for Policies with the Option 2 death benefit.
We may also offer the Salary Refresh program for Policies issued on an
underwritten basis in some business situations. Any Salary Refresh face amount
increases under these Policies are underwritten in connection with the
application for the initial face amount of the Policies, and are subject to
limits that we determine at that time.
The terms and conditions of the Salary Refresh program are contained in our
published rules which are furnished at the time of application.
A-24
<PAGE>
Loan Provision
You may borrow all or part of the Policy's "loan value" at any time after
the Right to Return the Policy period. We make the loan as of the date when we
receive a loan request. (See "Receipt of Communications and Payments at
NELICO's Home Office".) You should contact our Home Office or your registered
representative for information on loan procedures.
The Policy's loan value equals:
(i) 90% (or more if required by state law) of the Policy's "projected cash
value"; minus
(ii) the Policy's Surrender Charge on the next Planned Premium due date or,
if greater, on the date the loan is made; minus
(iii) loan interest to the next loan interest due date.
The "projected cash value" is the cash value projected to the next Policy
anniversary or, if earlier, to the next Planned Premium due date, at a 4% rate
and using current Policy charges. The loan value available is reduced by any
outstanding loan plus interest. We currently intend to base the loan value on
100% of the Policy's projected cash value, rather than 90%, for Policy years
16 and after.
Example: Using the Policy illustrated on page A-46 assume that the
Policy's Planned Premiums have been paid and that the Policy's Sub-Accounts
have earned a constant 6% hypothetical gross annual rate of return (equal to
a constant net annual rate of return of 4.41%). After the premium payment on
the 10th Policy anniversary, the maximum amount that you could borrow would
be determined as follows under (i) an annual premium payment schedule and
(ii) a quarterly premium payment schedule:
<TABLE>
<CAPTION>
Annual Quarterly
------- ---------
<S> <C> <C>
(1)Cash Value after Premium Payment on 10th Policy Anni-
versary.................................................. $43,199 $40,842
(2)Cash Value Projected at a Constant Annual Rate of Re-
turn of 4% to the
(a)11th Policy Anniversary.............................. 44,248
(b)Next Planned Premium Due Date........................ 41,062
(3)90% of Amount Calculated in (2)........................ 39,823 36,956
(4)Amount Calculated in (3), Reduced by the Applicable
Surrender Charge......................................... 39,558 36,691
(5)Amount Calculated in (4), Reduced by Loan Interest to
the Next Interest Due Date............................... 37,496 34,778
</TABLE>
A Policy loan reduces the Policy's cash value in the Sub-Accounts by the
amount of the loan. A loan repayment increases the cash value in the Sub-
Accounts by the amount of the repayment. Unless you request otherwise, we
attribute Policy loans first to the Sub-Accounts of the Variable Account in
proportion to the cash value in each, and then the Fixed Account. We allocate
loan repayments first to the outstanding loan balance attributed to the Fixed
Account and then to the Sub-Accounts of the Variable Account in proportion to
the cash value in each.
The interest rate charged on Policy loans is an effective rate of 5.5% per
year (using simple interest during the year). Interest accrues daily and is
due on the Policy anniversary. If not paid at that time, we add the interest
accrued to the loan amount, and we deduct an amount equal to the unpaid
interest from the Policy's cash value in the Sub-Accounts and the Fixed
Account in proportion to the amount in each. The amount we take from the
Policy's Sub-Accounts as a result of the loan earns interest (compounded
daily) at an effective rate of not less than 4% per year. The rate we
currently credit is 4% per year for the first 15 Policy years and 5.25%
thereafter. (You should consult a tax advisor as to the tax consequences
associated with a Policy loan outstanding after the first 15 Policy years.) We
credit this interest amount to the Policy's Sub-Accounts annually, in
proportion to the cash value in each.
The amount taken from the Policy's Sub-Accounts as a result of a loan does
not participate in the investment experience of the Sub-Accounts. Therefore,
loans can permanently affect the death benefit and cash value of the Policy,
even if repaid. In addition, we reduce any proceeds payable under a Policy by
the amount of any outstanding loan plus accrued interest.
If a Policy loan is outstanding, it may be better to repay the loan than to
pay a premium, because the payment is subject to sales and premium tax
charges, and the loan repayment is not subject to charges. However, repaying
the loan instead of paying a premium could make your Policy ineligible for a
death benefit guarantee. (See "Deductions from Premiums" and "Death Benefit".)
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<PAGE>
If Policy loans plus accrued interest at any time exceed the Policy's cash
value less the Surrender Charge on the next Policy loan interest due date (or,
if the Surrender Charge would be greater, on the date the calculation is
made), we notify you that the Policy is going to terminate. (This is called an
"excess Policy loan". We test for an excess Policy loan on each monthly
processing date and in connection with other Policy processing transactions.)
The Policy terminates without value 62 days after we mail the notice unless
you pay us the excess Policy loan amount within that time. If the Policy
lapses with a loan outstanding, adverse tax consequences may result. If your
Policy is a "modified endowment contract", loans under your Policy may be
treated as taxable distributions. (See "Tax Considerations" below.)
Department of Labor regulations impose requirements for participant loans
under tax-qualified pension plans. Therefore, plan loan provisions may differ
from Policy loan provisions. See "Tax Considerations".
Surrender
You may surrender a Policy for its net cash value at any time while the
insured is living. We determine the net cash value of the surrendered Policy
as of the date when we receive the surrender request. The net cash value
equals the cash value reduced by any Policy loan and accrued interest and by
any applicable Surrender Charge. (See "Surrender Charge".) We increase the net
cash value paid on surrender by the portion of any cost of insurance charge we
deducted for the period beyond the date of surrender. If you surrender the
Policy during the grace period, we reduce the net cash value by an amount to
cover the Monthly Deduction to the date of surrender. You may apply all or
part of the net cash value to a payment option. (See "Payment Options".) A
surrender may result in adverse tax consequences. (See "Tax Considerations"
below.)
Partial Surrender
You may make a partial surrender of the Policy after the Right to Return the
Policy period, to receive a portion of its net cash value. A partial surrender
reduces the Policy's death benefit and may reduce the Policy's face amount if
necessary so that the amount at risk under the Policy will not increase. Any
reduction in the face amount causes a proportionate reduction in the Policy's
Target Premium, on which we base any future Surrender Charges (and, currently,
the sales charge deducted from premiums). A partial surrender may also reduce
rider benefits. We reserve the right to decline a partial surrender request
that would reduce the face amount below the Policy's required minimum.
We have the right to limit partial surrenders in any one Policy year to 20%
of the Policy's net cash value on the date of the first partial surrender for
the Policy year or, if less, the Policy's available loan value. Currently, we
permit partial surrenders of up to 75% of the Policy's net cash value per
year, if there is sufficient available loan value. (In some business
situations or for some tax-qualified pension plans we may permit you to
withdraw a higher percentage of the net cash value.)
We deduct any Surrender Charge that applies to the partial surrender from
the Policy's remaining cash value in an amount proportional to the amount of
the Policy's face amount surrendered. The Surrender Charge applied reduces any
remaining Surrender Charge that can be applied under your Policy.
You may not reinvest cash value paid upon partial surrender in the Policy
except as premium payments, which are subject to the charges described under
"Deductions From Premiums". A partial surrender could terminate your Policy's
Minimum Guaranteed Death Benefit. See "Minimum Guaranteed Death Benefit".
A partial surrender first reduces the Policy's cash value in the Sub-
Accounts of the Variable Account, in proportion to the amount of cash value in
each, and then the Fixed Account, unless you request otherwise. (See "The
Fixed Account" below.) We determine the amount of net cash value paid upon
partial surrender as of the date when we receive a request. You can contact
your registered representative or the Home Office for information on partial
surrender procedures.
A reduction in the death benefit as a result of a partial surrender may
create a "modified endowment contract" or have other adverse tax consequences.
If you are contemplating a partial surrender, you should consult your tax
advisor regarding the tax consequences. (See "Tax Considerations".)
Reduction in Face Amount
You may reduce the face amount of your Policy without receiving a
distribution of any Policy cash value. (This feature differs from a partial
surrender, which reduces the Policy's net cash value.)
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<PAGE>
If you decrease the face amount of your Policy, we also decrease the Target
Premium, on which we base any future Surrender Charges (and, currently, the
sales charge deducted from premiums). We deduct any Surrender Charge that
applies from the Policy's cash value when you reduce its face amount.
A face amount reduction usually decreases the Policy's death benefit.
(However, if we are increasing the death benefit to satisfy federal income tax
laws, a face amount reduction will not decrease the death benefit unless we
deducted a Surrender Charge from the cash value. A reduction in face amount in
this situation may not be advisable because it will not reduce your death
benefit or cost of insurance charges and may result in a Surrender Charge.) We
also may decrease any rider benefits attached to the Policy. The face amount
remaining after a reduction must meet our minimum face amount requirements for
issue, except with our consent; special rules apply in business situations.
A reduction in face amount reduces the Federal tax law limits on the amount
of premiums that you can pay under the Policy. In these cases, you may need a
partial surrender of cash value to comply with Federal tax law. This could
terminate your Policy's Minimum Guaranteed Death Benefit. (See "Minimum
Guaranteed Death Benefit".)
A face amount reduction takes effect as of the date when we receive a
request. You can contact your registered representative or the Home Office for
information on face reduction procedures.
A reduction in the face amount of a Policy that causes a death benefit
reduction may create a "modified endowment contract". If you are contemplating
a reduction in face amount, you should consult your tax advisor regarding the
tax consequences of the transaction. (See "Tax Considerations".)
ACCELERATION OF DEATH BENEFIT RIDER
We may offer in the future a rider benefit that will allow you to receive an
accelerated payment of your Policy's death benefit. This benefit will be
available where certain special needs exist, as described briefly below. Your
right to exercise the rider will be subject to certain conditions.
WE WILL MAKE THE ACCELERATED BENEFITS RIDER AVAILABLE TO YOU ONLY IF: (1)
YOUR STATE INSURANCE DEPARTMENT HAS APPROVED THE RIDER, AND (2) WE BELIEVE
THAT THE RIDER WILL MEET THE DEFINITION OF AN ACCELERATED DEATH BENEFIT FOR
FEDERAL INCOME TAX PURPOSES AND (3) WE BELIEVE THAT THE RIDER WILL NOT
JEOPARDIZE THE QUALIFICATION OF THE POLICY AS LIFE INSURANCE UNDER FEDERAL
INCOME TAX LAW.
We expect that payment of the rider benefit will be available if the insured
is diagnosed as terminally ill, as defined in the rider. The benefit may be
subject to discounting and charges. Payment will be subject to evidence
satisfactory to us.
See "Tax Considerations", below, for a discussion of the tax consequences
associated with the accelerated benefits rider.
INVESTMENT OPTIONS
You can allocate your Policy's premiums among the Sub-Accounts of the
Variable Account and the Fixed Account in any combination, as long as you
choose no more than 10 accounts (including the Fixed Account) at any one time.
The Policy provides that you must allocate a minimum of 10% of the premium to
each Sub-Account selected in whole percentages; currently we will permit you
to allocate ANY whole percentage to a Sub-Account. You can allocate your
Policy's cash value among no more than 10 accounts (including the Fixed
Account) at any one time.
You make the initial premium allocation when you apply for a Policy. You can
change the allocation of future premiums at any time thereafter. The change
will be effective for premiums applied on or after the date when we receive
your request. You may request the change by telephone or by written request.
(See "Receipt of Communications and Payments at NELICO's Home Office.")
See "Transfer Option" below for information on how to request a transfer or
reallocation by telephone.
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Transfer Option
After the Right to Return the Policy period, you may transfer your Policy's
cash value between Sub-Accounts. We reserve the right to limit sub-account
transfers to four per Policy year (twelve per Policy year for Policies issued
in New York). We currently allow 12 Sub-Account transfers per policy year
under all Policies. We do not count transfers out of the Fixed Account against
this limit. We treat all Sub-Account transfer requests made at the same time
as a single request. The transfer is effective as of the date when we receive
the transfer request. (See "Receipt of Communications and Payments at NELICO's
Home Office".) For special rules regarding transfers involving the Fixed
Account, see "The Fixed Account".
We did not design the Policy's transfer privilege to give you a way to
speculate on short-term market movements. To prevent excessive transfers that
could disrupt the management of the Eligible Funds and increase transaction
costs, we may adopt procedures to limit excessive transfer activity. For
example, we may impose conditions and limits on, or refuse to accept, transfer
requests that we receive from third parties. Third parties include investment
advisors or registered representatives acting under power(s) of attorney from
one or more Policy owners.
You may request a Sub-Account transfer or reallocation of future premiums by
written request (which may be telecopied) to us or by telephoning us. To
request a transfer or reallocation by telephone, you should contact your
registered representative or contact us at 1-800-200-2214. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Any telephone instructions that we reasonably believe to be genuine are your
responsibility, including losses arising from any errors in the communication
of instructions.
Substitution of Insured Person
Subject to state insurance department approval, we offer a rider benefit
that permits you to substitute the insured person under your Policy, if you
provide satisfactory evidence that the person proposed to be insured is
insurable. The right to substitute the insured person is subject to some
restrictions and may result in a cost or credit to you. A substitution of the
insured person is a taxable exchange. In addition, a substitution of the
insured person could reduce the amount of premiums you can pay into the Policy
under Federal tax law and, therefore, may require a partial surrender of cash
value. (No Surrender Charge will apply.)
Your registered representative can provide current information on the
availability of the rider. You should consult your tax advisor before
substituting the insured person under your Policy.
Payment of Proceeds
We ordinarily pay any net cash value, loan value or death benefit proceeds
from the Sub-Accounts within seven days after we receive a request, or
satisfactory proof of death of the insured. (See "Receipt of Communications
and Payments at NELICO's Home Office".) However, we may delay payment (except
when a loan is made to pay a premium to us) or transfers from the Sub-
Accounts: (i) if the New York Stock Exchange is closed for other than weekends
or holidays, or if trading on the New York Stock Exchange is restricted, (ii)
if the SEC determines that an emergency exists that makes payments or Sub-
Account transfers impractical, or (iii) at any other time when the Eligible
Funds or the Variable Account have the legal right to suspend payment.
We may withhold payment of surrender or loan proceeds if those proceeds are
coming from a Policy Owner's check, or from a Master Service Account premium
transaction, which has not yet cleared. We may also delay payment while we
consider whether to contest the Policy. We pay interest on the death benefit
proceeds from the date they become payable to the date we pay them.
The beneficiary can elect our Access Plus program for payment of death
proceeds at any time before we pay them. We establish an Access Plus account
at State Street Bank & Trust Company at the time for payment. The Access Plus
account gives convenient access to the proceeds, which are maintained in
MetLife's general account, through checkbook privileges with State Street.
Normally we promptly make payments of cash value, or of any loan value
available, from cash value in the Fixed Account. However, we may delay those
payments for up to six months. We pay interest in accordance with state
insurance law requirements on delayed payments.
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<PAGE>
24 Month Right
General Right. Generally, during the first 24 months after the Policy's
issue date, you may convert the Policy, or a portion of it, to fixed benefit
coverage by transferring all or a portion of your Policy's cash value, and
allocating all or a portion of future premiums, to the Fixed Account. The
request to convert to fixed benefit coverage must be in written form
satisfactory to us. Increase Policies have the same 24 Month Right.
You may exercise this privilege only once within 24 months after issue.
Transfers into the Fixed Account pursuant to this right will not count toward
the limit on the number of cash value transfers permitted under the Policy
each year. Transfers of cash value back to one or more Sub-Accounts of the
Variable Account are subject to the Policy's general limits on transfers from
the Fixed Account (see "The Fixed Account").
The Policy permits us to limit allocations to the Fixed Account under some
circumstances. (See "The Fixed Account.") If we limit such allocations and you
then wish to exercise the 24 Month Right, you may continue to allocate to the
Fixed Account only the percentage of premiums that you allocated to the Fixed
Account pursuant to your exercise of the 24 Month Right. In addition, if you
have exercised this right, and we later limit such allocations, then you may
continue to allocate to the Fixed Account only the lowest percentage of
premiums that you allocated to the Fixed Account at any time since your
exercise of the 24 Month Right.
For Policies Issued in Maryland and New Jersey. Under Policies issued in
Maryland and New Jersey, you can exchange the face amount of your Policy for a
fixed benefit life insurance policy provided that you repay any policy loans
and (1) the Policy has not lapsed and (2) the exchange is made within 24
months after the Policy's issue date. If you exercise this option, you will
have to make up any investment loss you had under the variable life insurance
policy. We make the exchange without evidence of insurability. The new policy
will have, at your option, either the same death benefit or the same net
amount at risk as that being exchanged. The new policy will have the same
issue age, underwriting class and policy date as the variable life policy had.
We will attach any riders to the original Policy to the new policy if they are
available.
Contact us or your registered representative for more specific information
about the 24 Month Right in these states. The exchange may result in a cost or
credit to you. On the exchange, you may need to make an immediate premium
payment on the new policy in order to keep it in force.
Group or Sponsored Arrangements. For a Policy issued to some group or
sponsored arrangements, we offer the additional option of exchanging the
Policy at any time during the first 36 months after the Policy's issue date,
if the Policy has not lapsed, to a fixed-benefit term life insurance policy
issued by us or an affiliate. (Availability of this feature depends on state
insurance department approval.) Contact us or your registered representative
for more information about this feature.
Payment Options
We pay the Policy's death benefit and net cash value in one sum unless you
or the payee choose a payment option for all or part of the proceeds. You can
choose a combination of payment options. You can make, change or revoke the
selection of payee or payment option before the death of the insured. You can
contact your registered representative or the Home Office for the procedure to
follow. The payment options available are fixed benefit options only and are
not affected by the investment experience of the Variable Account. Once
payments under an option begin, withdrawal rights may be restricted.
The following payment options are available:
(i) Income for a Specified Number of Years. We pay proceeds in equal monthly
installments for up to 30 years, with interest at a rate not less than
3.5% a year, compounded yearly. Additional interest that we pay for any
year is added to the monthly payments for that year.
(ii) Life Income. We pay proceeds in equal monthly installments (i) during
the life of the payee, (ii) for the longer of the life of the payee or
10 years, or (iii) for the longer of the life of the payee or 20 years.
(iii) Life Income with Refund. We pay proceeds in equal monthly installments
during the life of the payee. At the payee's death, we pay any unpaid
proceeds remaining either in one sum or in equal monthly installments
until we have paid the total proceeds.
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<PAGE>
(iv) Interest. We hold proceeds for the life of the payee or another agreed
upon period. We pay interest of at least 3.5% a year monthly or add it
to the principal annually. At the death of the payee, or at the end of
the period agreed to, we pay the balance of principal and any interest
in one sum.
(v) Specified Amount of Income. We pay proceeds plus accrued interest of at
least 3.5% a year in an amount and at a frequency elected until we have
paid total proceeds. We pay any amounts unpaid at the death of the payee
in one sum.
(vi) Life Income for Two Lives. We pay proceeds in equal monthly
installments (i) while either of two payees is living, (ii) for the
longer of the life of the surviving payee or 10 years, or (iii) while
the two payees are living and, after the death of one payee, we pay
two-thirds of the monthly amount for the life of the surviving payee.
You need our consent to use an option if the installment payments would be
less than $20.
Additional Benefits by Rider
You can add additional benefits to the Policy by rider , subject to our
underwriting and issuance standards. These additional benefits usually require
an additional charge as part of the Monthly Deduction from cash value. The
rider benefits available with the Policies provide fixed benefits that do not
vary with the investment experience of the Variable Account.
There may be circumstances in which it will be to your economic advantage to
include a significant portion or percentage of your insurance coverage under a
level term insurance rider. In many other circumstances, it may be in your
interest to obtain a Policy without term rider coverage. These circumstances
depend on many factors, including the premium levels and amount and duration
of coverage you choose, as well as the age, sex and risk classification of the
insured.
Reductions in or elimination of term rider coverage do not trigger a
Surrender Charge, and use of a term rider generally reduces sales
compensation. Your registered representative can provide you more information
on the uses of term rider coverage.
The following riders are available:
Level Term Insurance, which provides term insurance.
Waiver of Monthly Deduction, which provides for waiver of Monthly
Deductions upon the disability of the insured.
Temporary Term Insurance, which provides for insurance from the date of
issue to the Policy Date.
Children's Insurance, which provides insurance on the life of the insured's
children.
Not all riders may be available to you and riders in addition to those
listed above may be made available. You should consult your registered
representative regarding the availability of riders.
Policy Owner and Beneficiary
The Policy Owner is named in the application but may be changed from time to
time. At the death of the Policy Owner, his or her estate will become the
Policy Owner unless a successor Policy Owner has been named. The Policy
Owner's rights (except for rights to payment of benefits) terminate at the
death of the insured.
The beneficiary is also named in the application. You may change the
beneficiary at any time before the death of the insured. The beneficiary has
no rights under the Policy until the death of the insured and must survive the
insured in order to receive the death proceeds. If no named beneficiary
survives the insured, we pay proceeds to the Policy Owner.
A change of Policy Owner or beneficiary is subject to all payments made and
actions taken by us under the Policy before we receive a signed change form.
You can contact your registered representative or the Home Office for the
procedure to follow.
You may assign (transfer) your rights in the Policy to someone else. An
absolute assignment of the Policy is a change of Policy Owner and beneficiary
to the assignee. A collateral assignment of the Policy does not change the
Policy Owner or beneficiary, but their rights will be subject to the terms of
the assignment. Assignments are subject to all payments made and
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<PAGE>
actions taken by us under the Policy before we receive a signed copy of the
assignment form. We are not responsible for determining whether or not an
assignment is valid. Changing the Policy Owner or assigning the Policy may
have tax consequences. (See "Tax Considerations" below.)
THE VARIABLE ACCOUNT
We established the Variable Account as a separate investment account on
January 31, 1983 under Delaware law. It became subject to Massachusetts law
when we changed our domicile to Massachusetts on August 30, 1996. The Variable
Account is the funding vehicle for the Policies, and other NELICO variable
life insurance policies; these other policies impose different costs, and
provide different benefits, from the Policies. The Variable Account meets the
definition of a "separate account" under Federal securities laws, and is
registered with the Securities and Exchange Commission (the "SEC") as a unit
investment trust under the Investment Company Act of 1940. Registration with
the SEC does not involve SEC supervision of the Variable Account's management
or investments. However, the Massachusetts Insurance Commissioner regulates
NELICO and the Variable Account, which are also subject to the insurance laws
and regulations where the Policies are sold.
Although we own the assets of the Variable Account, applicable law provides
that the portion of the Variable Account assets equal to the reserves and
other liabilities of the Variable Account may not be charged with liabilities
that arise out of any other business we may conduct. We believe this means
that the assets of the Variable Account equal to the reserves and other
liabilities of the Variable Account are not available to meet the claims of
our general creditors, and may only be used to support the cash values under
our variable life insurance policies issued by the Variable Account. We may
transfer to our general account assets which exceed the reserves and other
liabilities of the Variable Account. We will consider any possible adverse
impact such a transfer might have on the Variable Account.
Income and realized and unrealized capital gains and losses of the Variable
Account are credited to the Variable Account without regard to any of our
other income or capital gains and losses.
Investments of the Variable Account
The Variable Account currently has 18 Sub-Accounts. Each invests in an
Eligible Fund. The Sub-Accounts and the Eligible Funds are:
--The Zenith Money Market Sub-Account, which invests in the Back Bay
Advisors Money Market Series of the Zenith Fund
--The Zenith Bond Income Sub-Account, which invests in the Back Bay Advisors
Bond Income Series of the Zenith Fund
--The Zenith Capital Growth Sub-Account, which invests in the Capital Growth
Series of the Zenith Fund
--The Zenith Stock Index Sub-Account, which invests in the Westpeak Stock
Index Series of the Zenith Fund
--The Zenith Managed Sub-Account, which invests in the Back Bay Advisors
Managed Series of the Zenith Fund
--The Zenith Growth and Income Sub-Account, which invests in the Westpeak
Growth and Income Series of the Zenith Fund
--The Zenith Small Cap Sub-Account, which invests in the Loomis Sayles Small
Cap Series of the Zenith Fund
--The Zenith Balanced Sub-Account, which invests in the Loomis Sayles
Balanced Series of the Zenith Fund
--The Zenith Equity Growth Sub-Account, which invests in the Alger Equity
Growth Series of the Zenith Fund
--The Zenith Venture Value Sub-Account, which invests in the Davis Venture
Value Series of the Zenith Fund
--The Zenith Midcap Value Sub-Account, which invests in the Goldman Sachs
Midcap Value Series (formerly the Loomis Sayles Avanti Growth Series) of
the Zenith Fund
--The Zenith International Magnum Equity Sub-Account, which invests in the
Morgan Stanley International Magnum Equity Series of the Zenith Fund
--The Zenith Investors Sub-Account, which invests in the MFS Investors
Series of the Zenith Fund*
--The Zenith Research Managers Sub-Account, which invests in the MFS
Research Managers Series of the Zenith Fund*
--The Equity-Income Sub-Account, which invests in the VIP Equity-Income
Portfolio
--The Overseas Sub-Account, which invests in the VIP Overseas Portfolio
--The High Income Sub-Account, which invests in the VIP High Income
Portfolio
--The Asset Manager Sub-Account, which invests in the VIP II Asset Manager
Portfolio
- --------
* Availability is subject to any necessary state insurance department
approvals.
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The Zenith Fund is an open-end diversified management investment company,
more commonly known as a mutual fund. The Zenith Fund is an investment vehicle
for separate investment accounts of NELICO and of other life insurance
companies.
VIP and VIP II are open-end, diversified management investment companies
(mutual funds) that serve as the investment vehicles for variable life
insurance and variable annuity separate accounts of various insurance
companies.
The Variable Account purchases and sells Eligible Fund shares at their net
asset value (without a deduction for sales load) determined as of the close of
regular trading on the New York Stock Exchange on each day when the exchange
is open for trading.
Investment Objectives
The investment objectives of the Eligible Funds are described briefly below.
These objectives may not be met. More about the Eligible Funds, including
their investments, expenses, and risks, is in the attached Eligible Fund
prospectuses and the Eligible Funds' Statements of Additional Information.
The investment objectives and policies of certain Eligible Funds are similar
to the investment objectives and policies of other funds that may be managed
by the same sub-adviser. The investment results of the Eligible Funds may be
higher or lower than the results of these funds. There is no assurance, and no
representation is made, that the investment results of any of the Eligible
Funds will be comparable to the investment results of any other fund.
The Zenith Back Bay Advisors Money Market Series' investment objective is
the highest possible level of current income consistent with preservation of
capital. An investment in the Money Market Series is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Series seeks to maintain a net asset value of $100
per share, it is possible to lose money by investing in the Money Market
Series.
The Zenith Back Bay Advisors Bond Income Series' investment objective is a
high level of current income consistent with protection of capital.
The Zenith Capital Growth Series' investment objective is the long-term
growth of capital through investment primarily in equity securities of
companies whose earnings are expected to grow at a faster rate than the United
States economy.
The Zenith Westpeak Stock Index Series' investment objective is investment
results that correspond to the composite price and yield performance of United
States publicly traded common stocks.
The Zenith Back Bay Advisors Managed Series' investment objective is a
favorable total return through investment in a diversified portfolio.
The Zenith Westpeak Growth and Income Series' investment objective is long-
term total return through investment in equity securities.
The Zenith Goldman Sachs Midcap Value Series' investment objective is long-
term capital appreciation.
The Zenith Loomis Sayles Small Cap Series' investment objective is long-term
capital growth from investments in common stocks or their equivalents.
The Zenith Loomis Sayles Balanced Series' investment objective is reasonable
long-term investment return from a combination of long-term capital
appreciation and moderate current income.
The Zenith Morgan Stanley International Magnum Equity Series' investment
objective is long-term capital appreciation through investment primarily in
international equity securities. In addition to the risks associated with
equity securities generally, foreign securities present additional risks.
The Zenith Davis Venture Value Series' investment objective is growth of
capital.
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The Zenith Alger Equity Growth Series' investment objective is long-term
capital appreciation.
The Zenith MFS Investors Series' investment objective is reasonable current
income and long-term growth of capital and income.
The Zenith MFS Research Managers Series' investment objective is long-term
growth of capital.
The VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.
The VIP Overseas Portfolio seeks long-term growth of capital. Foreign
markets, particularly emerging markets, can be more volatile than the U.S.
market due to increased risks of adverse issuer, political, regulatory, market
or economic developments and can perform differently than the U.S. market.
The VIP High Income Portfolio seeks a high level of current income while
also considering growth of capital. Lower-quality debt securities (those of
less than investment-grade quality) can be more volatile due to increased
sensitivity to adverse issuer, political, regulatory, market or economic
developments.
The VIP II Asset Manager Portfolio seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
instruments.
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<PAGE>
INVESTMENT MANAGEMENT
The chart below shows the adviser and sub-adviser for each series of the
Zenith Fund. New England Investment Management, which is an indirect, wholly-
owned subsidiary of NELICO, CGM, and each of the sub-advisers are registered
with the SEC as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
SERIES ADVISER SUB-ADVISER
------ ------- -----------
<S> <C> <C>
Capital Capital Growth Management Limited
Growth Partnership ("CGM")*
Back Bay
Advisors
Money Market New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay
Advisors
Bond Income New England Investment Management, Inc. Back Bay Advisors, L.P.*
Back Bay
Advisors
Managed New England Investment Management, Inc. Back Bay Advisors, L.P.*
Westpeak
Stock Index New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Westpeak
Growth and
Income New England Investment Management, Inc. Westpeak Investment Advisors, L.P.*
Loomis Sayles
Small Cap New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles
Balanced New England Investment Management, Inc. Loomis, Sayles & Company, L.P.*
Morgan New England Investment Management, Inc. Morgan Stanley Dean Witter
Stanley Investment Management Inc.
International
Magnum
Equity
Goldman Sachs
Midcap Value New England Investment Management, Inc. Goldman Sachs Asset Management
Davis Venture
Value New England Investment Management, Inc. Davis Selected Advisers, L.P.**
Alger Equity
Growth New England Investment Management, Inc. Fred Alger Management, Inc.
MFS Investors New England Investment Management, Inc. Massachusetts Financial Services
Company
MFS Research New England Investment Management, Inc. Massachusetts Financial Services
Managers Company
</TABLE>
- --------
* An affiliate of NELICO
** Davis Selected may also delegate any of its responsibilities to Davis
Selected Advisers--NY, Inc., a wholly-owned subsidiary of Davis Selected.
In the case of the Back Bay Advisors Money Market Series, Back Bay Advisors
Bond Income Series, Back Bay Advisors Managed Series, Westpeak Stock Index
Series, Westpeak Growth and Income Series, Goldman Sachs Midcap Value Series
and Loomis Sayles Small Cap Series, New England Investment Management
(formerly TNE Advisers, Inc.) became the adviser on May 1, 1995. The Morgan
Stanley International Magnum Equity Series' sub-adviser was Draycott Partners,
Ltd. until May 1, 1997, when Morgan Stanley Dean Witter Investment Management
(formerly Morgan Stanley Asset Management) became the sub-adviser. The Goldman
Sachs Midcap Value Series' sub-adviser was Loomis, Sayles until May 1, 1998,
when Goldman Sachs Asset Management became the sub-adviser. For more
information about the Series' advisory agreements, see the Zenith Fund
prospectus attached at the end of this prospectus and the Zenith Fund's
Statement of Additional Information.
FMR is the investment adviser for VIP and VIP II. For more information
regarding the VIP Equity-Income, VIP Overseas, VIP High Income and VIP II
Asset Manager Portfolios and Fidelity Management & Research Company, see the
VIP and VIP II prospectuses attached at the end of this prospectus and their
Statements of Additional Information.
THE FIXED ACCOUNT
THE POLICY HAS A FIXED ACCOUNT OPTION ONLY IN STATES THAT APPROVE IT.
You may allocate net premiums and transfer cash value to the Fixed Account,
which is part of NELICO's general account. Because of exemptive and
exclusionary provisions in the Federal securities laws, interests in the Fixed
Account are not registered under the Securities Act of 1933. Neither the Fixed
Account nor the general account is registered as an investment company under
the Investment Company Act of 1940. Therefore, neither the Fixed Account, the
general account nor any interests therein are generally subject to the
provisions of these Acts, and the SEC does not review Fixed Account
disclosure. This disclosure may, however, be subject to certain provisions of
the Federal securities laws on the accuracy and completeness of prospectuses.
A-34
<PAGE>
GENERAL DESCRIPTION
Our general account includes all of our assets except assets in the Variable
Account or in our other separate accounts. We decide how to invest our general
account assets. Fixed Account allocations do not share in the actual
investment experience of the Fixed Account. Instead, we guarantee that the
Fixed Account will credit interest at an annual effective rate of at least 4%.
We may or may not credit interest at a higher rate. We declare the current
interest rate for the Fixed Account periodically. The Fixed Account earns
interest daily.
We can change our Fixed Account interest crediting procedures. Currently,
all cash value in the Fixed Account on a Policy anniversary earns interest at
the declared annual rate in effect on the anniversary until the next Policy
anniversary, when it is credited with our current rate. (Although our current
practice is to credit your entire Fixed Account cash value on a Policy
anniversary with our current annual rate until the next anniversary, we can
select any portion, from 0% to 100%, of your Fixed Account cash value on a
Policy anniversary to earn interest at our current rate until the next Policy
anniversary.) Any net premiums allocated or cash value transferred to the
Fixed Account on a date other than a Policy anniversary earn interest at our
current rate until the next Policy anniversary. Any loan repayment allocated
to the Fixed Account is credited with the lesser of our current interest rate
and the effective interest rate for your Policy's cash value in the Fixed
Account on the date of the repayment. The Fixed Account effective interest
rate is a weighted average of all the Fixed Account rates for your Policy.
VALUES AND BENEFITS
Cash value in the Fixed Account increases from net premiums allocated and
transfers to the Fixed Account and Fixed Account interest, and decreases from
loans, partial surrenders made from the Fixed Account, charges and transfers
from the Fixed Account. We deduct charges from the Fixed Account and the
Policy's Sub-Accounts in proportion to the amount of cash value in each. (See
"Monthly Deduction from Cash Value".) A Policy's total cash value includes
cash value in the Variable Account, the Fixed Account, and any cash value held
in our general account (but outside of the Fixed Account) due to a Policy
loan.
Cash value in the Fixed Account is included in the calculation of the
Policy's death benefit in the same manner as the cash value in the Variable
Account. (See "Death Benefit".)
POLICY TRANSACTIONS
We can restrict allocations and transfers to the Fixed Account if the
effective annual rate of interest on the amount would be 4%. Otherwise, the
requirements for Fixed Account and Variable Account allocations are the same.
(See "Allocation of Net Premiums".)
Except as described below, the Fixed Account has the same rights and
limitations about premium allocations, transfers, loans, surrenders and
partial surrenders as the Variable Account. (See "Other Policy Features".) The
following special rules apply to the Fixed Account.
TRANSFERS FROM THE FIXED ACCOUNT TO THE VARIABLE ACCOUNT ARE ALLOWED ONLY
ONCE IN EACH POLICY YEAR. WE PROCESS A TRANSFER FROM THE FIXED ACCOUNT ONLY IF
WE RECEIVE THE TRANSFER REQUEST WITHIN THE 30 DAY PERIOD AFTER THE POLICY
ANNIVERSARY. WE MAKE THE TRANSFER AS OF THE DATE WE RECEIVE THE TRANSFER
REQUEST AT OUR HOME OFFICE.
THE AMOUNT OF CASH VALUE YOU MAY TRANSFER FROM THE FIXED ACCOUNT IS LIMITED
TO THE GREATER OF 25% OF THE POLICY'S CASH VALUE IN THE FIXED ACCOUNT ON THE
TRANSFER DATE OR THE AMOUNT OF CASH VALUE TRANSFERRED FROM THE FIXED ACCOUNT
IN THE PRECEDING POLICY YEAR. Regardless of these limits, if a transfer of
cash value from the Fixed Account would reduce the remaining cash value in the
Fixed Account below $100, you may transfer the entire amount of Fixed Account
cash value. The total number of transfers among Sub-Accounts and from the Sub-
Accounts to the Fixed Account may not exceed four in one Policy year without
our consent. We currently allow 12 transfers per Policy year. We do not count
transfers out of the Fixed Account against this limit.
Unless you request otherwise, a Policy loan reduces the Policy's cash value
in the Sub-Accounts and not the Fixed Account. If there is not enough cash
value in the Policy's Sub-Accounts for the loan, we take the balance from the
Fixed Account. We allocate all loan repayments first to the outstanding loan
balance attributable to the Fixed Account. The amount
A-35
<PAGE>
removed from the Policy's Sub-Accounts and the Fixed Account as a result of a
loan earns interest at an effective rate of at least 4% per year, which we
credit annually to the Policy's cash value in the Sub-Accounts and the Fixed
Account in proportion to the Policy's cash value in each on the day it is
credited.
Unless you request otherwise, we take partial surrenders only from the
Policy's Sub-Accounts and not the Fixed Account. If there is not enough cash
value in the Policy's sub-accounts for the partial surrender, we take the
balance from the Fixed Account.
We can delay transfers, surrenders, and Policy loans from the Fixed Account
for up to six months (to the extent allowed by state insurance law). We will
not delay loans to pay premiums on policies issued by us.
NELICO'S DISTRIBUTION AGREEMENT
We sell the Policies through licensed insurance agents. These agents are
also registered representatives of New England Securities Corporation ("New
England Securities"). New England Securities, a Massachusetts corporation
organized in 1968 and an indirect, wholly-owned subsidiary of NELICO, is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc.
New England Securities, 399 Boylston Street, Boston, Massachusetts 02116,
also serves as the principal underwriter for the Policies under a Distribution
Agreement with NELICO. Under the Distribution Agreement, we pay the following
sales expenses: general agent and agency manager's compensation, agents'
training allowances, deferred compensation and insurance benefits of agents,
general agents and agency managers and advertising expenses and all other
expenses of distributing the Policies.
We pay the following commissions and/or service fees to the selling agent: a
maximum of 50% of 110% of the Target Premium (plus any additional portion of a
premium which we attribute to certain riders for commission paying purposes)
paid in the first Policy year, a maximum of 5% in Policy years two through
ten, and a maximum of 3% thereafter. Agents receive a maximum commission of 3%
of each payment in excess of 110% of the Target Premium (plus any additional
portion of a premium which we attribute to certain riders for commission
paying purposes) in any year. For Policies sold in connection with certain
executive benefit plans the maximum commissions are: 20% of 110% of the Target
Premium (plus any additional portion of a premium which we attribute to
certain riders for commission paying purposes) in the first Policy year, 10%
in Policy years two through ten, and 2% thereafter. For these Policies we will
pay a maximum commission of 3.5% of each payment in excess of 110% of the
Target Premium (plus any additional portion of a premium attributable to
riders for commission purposes) in Policy years one through ten, and 2% of
such excess premiums thereafter. Agents who meet certain NELICO productivity
and persistency standards may be eligible for additional compensation.
New England Securities may enter into selling agreements with other broker-
dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell variable life
insurance policies. Under the agreements with those broker-dealers,
commissions paid to the broker-dealer on behalf of the registered
representative will not exceed those described above. We may pay certain
broker-dealers an additional bonus after the first Policy year on behalf of
certain registered representatives, which may be up to the amount of the basic
commission for the particular Policy year. We pay commissions through the
registered broker-dealer, and may pay additional compensation to the broker-
dealer and/or reimburse it for portions of Policy sales expenses.
LIMITS TO NELICO'S RIGHT TO CHALLENGE THE POLICY
Generally, we can challenge the validity of your Policy or a rider during
the insured's lifetime for two years (or less, if required by state law) from
the date of issue, based on misrepresentations made in the application. We can
challenge the portion of the death benefit resulting from an underwritten
premium payment for two years during the insured's lifetime from receipt of
the premium payment. However, if the insured dies within two years of the date
of issue, we can challenge all or part of the Policy at any time based on
misrepresentations in the application.
A-36
<PAGE>
Misstatement of Age or Sex
If the application misstates the insured's age or sex, the Policy's death
benefit is the amount that the most recent Monthly Deduction which was made
would provide, based on the insured's correct age and, if the Policy is sex-
based, correct sex.
Suicide
If the insured commits suicide within two years (or less, if required by
state law) from the date of issue, the death benefit is limited to premiums
paid, less any policy loan balance and partial surrenders. (Where required by
state law, we determine the death benefit under this provision by using the
greater of: the reserve of the insurance which is subject to the provision;
and the amounts used to purchase the insurance which is subject to the
provision.)
TAX CONSIDERATIONS
Introduction
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as
tax advice. Counsel or other competent tax advisors should be consulted for
more complete information. This discussion is based upon our understanding of
the present Federal income tax laws. No representation is made as to the
likelihood of continuation of the present Federal income tax laws or as to how
they may be interpreted by the Internal Revenue Service.
Tax Status of the Policy
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that the
Policies should satisfy the applicable requirements. There is less guidance,
however, with respect to Policies issued on a substandard or automatic issue
basis and Policies with term riders added, and it is not clear whether such
Policies will in all cases satisfy the applicable requirements. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements, and we reserve the right to restrict Policy
transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the variable account supporting their contracts, due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
variable account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of a Policy Owner to
allocate premiums and cash values, have not been explicitly addressed in
published rulings. While we believe that the Policies do not give Policy
Owners investment control over Variable Account assets, we reserve the right
to modify the Policies as necessary to prevent a Policy Owner from being
treated as the owner of the Variable Account assets supporting the Policy.
In addition, the Code requires that the investments of the Variable Account
be "adequately diversified" in order for the Policies to be treated as life
insurance contracts for Federal income tax purposes. It is intended that the
Variable Account, through the Eligible Funds, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. We believe that the death benefit under a Policy should be
excludible from the gross income of the beneficiary. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Policy Owner or beneficiary. A
tax advisor should be consulted on these consequences.
A-37
<PAGE>
Generally, the Policy Owner will not be deemed to be in constructive receipt
of the Policy cash value until there is a distribution. When distributions
from a Policy occur, or when loans are taken out from or secured by a Policy,
the tax consequences depend on whether the Policy is classified as a "Modified
Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with
less favorable income tax treatment than other life insurance contracts. In
general a Policy will be classified as a Modified Endowment Contract if the
amount of premiums paid into the Policy causes the Policy to fail the "7-pay
test." A Policy will fail the 7-pay test if at any time in the first seven
Policy years, the amount paid into the Policy exceeds the sum of the level
premiums that would have been paid at that point under a Policy that provided
for paid-up future benefits after the payment of seven level annual payments.
If there is a reduction in the benefits under the Policy during the first
seven Policy years, for example, as a result of a partial surrender, the 7-pay
test will have to be reapplied as if the Policy had originally been issued at
the reduced face amount. If there is a "material change" in the Policy's
benefits or other terms, even after the first seven Policy years, the Policy
may have to be retested as if it were a newly issued Policy. A material change
can occur, for example, when there is an increase in the death benefit which
is due to the payment of an unnecessary premium. Unnecessary premiums are
premiums paid into the Policy which are not needed in order to provide a death
benefit equal to the lowest death benefit that was payable in the first seven
Policy years. To prevent your Policy from becoming a Modified Endowment
Contract, it may be necessary to limit premium payments or to limit reductions
in benefits. A current or prospective Policy Owner should consult a tax
advisor to determine whether a Policy transaction will cause the Policy to be
classified as a Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
(1) All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a Modified Endowment Contract will be
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Policy Owner's investment in the Policy only after
all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject
to tax except where the distribution or loan is made when the Policy Owner
has attained age 59 1/2 or is disabled, or where the distribution is part
of a series of substantially equal periodic payments for the life (or life
expectancy) of the Policy Owner or the joint lives (or joint life
expectancies) of the Policy Owner and the Policy Owner's beneficiary or
designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy
that is not classified as a Modified Endowment Contract are generally treated
first as a recovery of the Policy Owner's investment in the Policy and only
after the recovery of all investment in the Policy as taxable income. However,
certain distributions which must be made in order to enable the Policy to
continue to qualify as a life insurance contract for Federal income tax
purposes if Policy benefits are reduced during the first 15 Policy years may
be treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions. However, the tax consequences
associated with Policy loans that are outstanding after the first 15 Policy
years are less clear and a tax adviser should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
Policy Loans. In general, interest on a Policy loan will not be deductible.
Before taking out a Policy loan, you should consult a tax adviser as to the
tax consequences.
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<PAGE>
Multiple Policies. All Modified Endowment Contracts that are issued by
NELICO (or its affiliates) to the same Policy Owner during any calendar year
are treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Policy Owner's income when a taxable distribution
occurs.
Accelerated Benefits Rider. We believe that payments received under the
accelerated benefits rider should be fully excludable from the gross income of
the beneficiary if the beneficiary is the insured under the Policy. (See
"Acceleration of Death Benefit Rider" for more information regarding the
rider.) However, you should consult a qualified tax adviser about the
consequences of adding this rider to a Policy or requesting payment under this
rider.
Other Policy Owner Tax Matters. Federal and state estate, inheritance,
transfer and other tax consequences depend on the individual circumstances of
each Policy Owner or beneficiary.
The tax consequences of continuing the Policy beyond the insured's 100th
year are unclear. You should consult a tax adviser if you intend to keep the
Policy in force beyond the insured's 100th year.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a Policy, the Federal, state and estate tax
consequences could differ. The amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan are limited.
The current cost of insurance for the net amount at risk is treated as a
"current fringe benefit" and must be included annually in the plan
participant's gross income. We report this cost (generally referred to as the
"P.S. 58" cost) to the participant annually. If the plan participant dies
while covered by the plan and the Policy proceeds are paid to the
participant's beneficiary, then the excess of the death benefit over the cash
value is not taxable. However, the cash value will generally be taxable to the
extent it exceeds the participant's cost basis in the Policy. Policies owned
under these types of plans may be subject to restrictions under the Employee
Retirement Income Security Act of 1974 ("ERISA"). You should consult a
qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy
tax requirements to be treated as nontaxable. Plan loan requirements and
provisions may differ from the Policy loan provisions. Failure of plan loans
to comply with the requirements and provisions of the DOL regulations and of
tax law may result in adverse tax consequences and/or adverse consequences
under ERISA. Plan fiduciaries and participants should consult a qualified
adviser before requesting a loan under a Policy held in connection with a
retirement plan.
Businesses can use the Policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The tax consequences
of such plans may vary depending on the particular facts and circumstances. If
you are purchasing the Policy for any arrangement the value of which depends
in part on its tax consequences, you should consult a qualified tax adviser.
In recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a
new Policy or a change in an existing Policy should consult a tax adviser.
We believe that Policies subject to Puerto Rican tax law will generally
receive treatment similar, with certain modifications, to that described
above. Among other differences, Policies governed by Puerto Rican tax law are
not currently subject to the rules described above regarding Modified
Endowment Contracts. You should consult your tax adviser with respect to
Puerto Rican tax law governing the Policies.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or otherwise. Consult a tax adviser with
respect to legislative developments and their effect on the Policy.
NELICO's Income Taxes
Under current Federal income tax law, NELICO is not taxed on the Variable
Account's operations. Thus, currently we do not deduct a charge from the
Variable Account for Federal income taxes. We reserve the right to charge the
Variable Account for any future Federal income taxes we may incur.
Under current laws in several states, we may incur state and local taxes (in
addition to premium taxes). These taxes are not now significant and we are not
currently charging for them. If they increase, we may deduct charges for such
taxes.
A-39
<PAGE>
MANAGEMENT
The directors and executive officers of NELICO and their principal business
experience during the past five years are:
Directors of NELICO
<TABLE>
<CAPTION>
Name and Principal Principal Business Experience
Business Address During The Past Five Years
------------------ -----------------------------
<C> <S>
James M. Benson Chairman, President and Chief Executive Officer of
NELICO since 1998; formerly, Director, President and
Chief Operating Officer 1997-1998 of NELICO; President
and Chief Executive Officer 1996-1997 of Equitable
Life Assurance Society; President and Chief Operating
Officer 1996-1997 of Equitable Companies, Inc.;
President and Chief Operating Officer 1994-1996 of
Equitable Life Assurance Society.
Robert H. Benmosche Director of NELICO since 1998 and Chairman, President
Metropolitan Life and Chief Executive Officer of Metropolitan Life
Insurance Co. Insurance Company since 1998; formerly, Director,
One Madison Avenue President and Chief Operating Officer 1997-1998;
New York, NY 10010 Executive Vice President 1995-1997 of Metropolitan
Life; Executive Vice President 1989-1995 of Paine
Webber.
Susan C. Crampton Director of NELICO since 1996 and serves as Principal
6 Tarbox Road of The Vermont Partnership, a business consulting firm
Jericho, VT 05465 located in Jericho, Vermont since 1989; formerly,
Director 1989-1996 of New England Mutual.
Edward A. Fox Director of NELICO since 1996 and Chairman of the Board
R.R. Box 67-15 of SLM Holdings since 1997; formerly, Director 1994-
Harborside, ME 04642 1996 of New England Mutual.
George J. Goodman Director of NELICO since 1996 and author, television
Adam Smith's Money World journalist, and editor.
50th Floor, Craig Drill
Capital
General Motors Building
767 Fifth Street
New York, NY 10153
Dr. Evelyn E. Handler Director of NELICO since 1996 and President of
Ten Sterling Place Merrimack Higher Education Associates, Inc. since
Bow, NH 03304 1998; formerly Director 1987-1996 of New England
Mutual and Executive Director and Chief Executive
Officer 1994-1997 of the California Academy of
Sciences.
Philip K. Howard, Esq. Director of NELICO since 1996 and Partner of the law
Howard, Smith & Levin LLP firm of Howard, Smith & Levin LLP in New York City.
1330 Avenue of the
Americas
New York, NY 10019
Bernard A. Leventhal Director of NELICO since 1996; formerly, Vice Chairman
Burlington Industries of the Board of Directors 1995-1998 of Burlington
1345 Avenue of the Industries, Inc.; Director and Executive Vice
Americas President 1993-1995 of Burlington Menswear Division.
17th Floor
New York, NY 10105
Thomas J. May Director of NELICO since 1996 and Chairman, President
Boston Edison Company and Chief Executive Officer of Boston Edison Company
800 Boylston Street since 1994; formerly, Director 1994-1996 of New
Boston, MA 02199 England Mutual.
Stewart G. Nagler Director of NELICO since 1996 and Vice Chairman and
Metropolitan Life Chief Financial Officer of Metropolitan Life Insurance
Insurance Co. Company since 1998; formerly, Senior Executive Vice
One Madison Avenue President and Chief Financial Officer 1986-1998 of
New York, NY 10010 Metropolitan Life Insurance Company.
</TABLE>
A-40
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Principal Business Experience
Business Address During The Past Five Years
------------------ -----------------------------
<C> <S>
Catherine A. Rein Director of NELICO since 1998 and President and Chief
Metropolitan Auto & Home Executive Officer of Metropolitan Auto & Home since
Insurance Company 1999; formerly; Senior Executive Vice President 1998-
700 Quaker Lane 1999; Executive Vice President 1989-1998 of
Warwick, RI 02887 Metropolitan Life Insurance Company.
Rand N. Stowell Director of NELICO since 1996 and President of United
P.O. Box 60 Timber Corp. of Dixfield, Maine; formerly, Director
Weld, ME 04285 1990-1996 of New England Mutual.
Alexander B. Trowbridge Director of NELICO since 1996 and President of
Trowbridge Partners Inc. Trowbridge Partners, Inc. in Washington, DC; formerly,
1317 F Street, NW, Director 1983-1996 of New England Mutual.
Suite 500
Washington, D.C. 20004
Executive Officers of NELICO
Other than Directors
<CAPTION>
Principal Business Experience
Name During the Past Five Years
---- -----------------------------
<C> <S>
James M. Benson See Directors above.
David W. Allen Senior Vice President of NELICO since 1996; formerly,
Senior Vice President 1994-1996 and Vice President
1990-1994 of New England Mutual.
A. Frank Beaz Executive Vice President of NELICO since 1999;
formerly, Senior Vice President 1998-1999 of NELICO;
Chief Administrative Officer and Senior Vice President
1997-1998 of Equitable Distributors and Senior Vice
President 1994-1997 of The Equitable Life Insurance
Companies.
Mary Ann Brown President, New England Products and Services (a
business unit of NELICO) since 1998; formerly,
Director, Worldwide Life Insurance 1997-1998 of Swiss
Reinsurance New Markets; President & Chief Executive
Officer 1996-1998 of Atlantic International
Reinsurance Company; Executive Vice President 1996-
1997 of Swiss Re Atrium and Swiss Re Services and
Principal 1987-1996 of Tillinghast/Towers Perrin.
Anthony J. Candito President, NEF Information Services (a business unit of
NELICO) and Chief Information Officer since 1998;
formerly, Senior Vice President 1996-1998 of NELICO;
Senior Vice President 1995-1996 and Vice President
1994-1995 of New England Mutual.
Thom A. Faria President, Career Agency System (a business unit of
NELICO) since 1996; formerly, Executive Vice President
in 1996; Senior Vice President 1993-1996 of New
England Mutual.
Anne M. Goggin Senior Vice President and Associate General Counsel of
NELICO since 1997; formerly, Vice President and
Counsel of NELICO in 1996; Vice President and Counsel
1994-1996 of New England Mutual.
Daniel D. Jordan Second Vice President, Counsel, Secretary and Clerk
since 1996; formerly, Counsel and Assistant Secretary
1990-1996 of New England Mutual.
Stephan M. Largent Senior Vice President of NELICO since 1998; formerly,
President 1995-1998 of First Variable Life Insurance
Company; President 1993-1995 of ING Equities, Inc. and
Vice President 1993-1995 of Security Life of Denver.
Alan C. Leland, Jr. Senior Vice President of NELICO since 1996; formerly,
Vice President 1984-1996 of New England Mutual.
Bruce C. Long President, New England Annuities (a business unit of
NELICO) since 1996; formerly, President 1994-1996 of
New England Annuities (a business unit of New England
Mutual).
</TABLE>
A-41
<PAGE>
<TABLE>
<CAPTION>
Principal Business Experience
Name During the Past Five Years
---- -----------------------------
<C> <S>
George J. Maloof Senior Vice President of NELICO since 1996; formerly,
Vice President 1991-1996 of New England Mutual.
Thomas W. McConnell Senior Vice President of NELICO since 1996 and
Director, Chief Executive Officer and President of New
England Securities Corporation since 1993.
Thomas W. Moore Senior Vice President of NELICO since 1996; formerly,
Vice President 1990-1996 of New England Mutual.
Richard A. Robinson Second Vice President and chief accounting officer
since 1998; formerly, Second Vice President 1997-1998
of NELICO; Manager of Life Insurance Accounting 1994-
1997 of Liberty Life Assurance Company.
David Y. Rogers Executive Vice President and Chief Financial Officer of
NELICO since 1999; formerly, Partner, Actuarial
Consulting 1992-1999 of Price Waterhouse Coopers LLP.
John G. Small, Jr. President, New England Services (a business unit of
NELICO) since 1997; formerly, Senior Vice President
1996-1997 of NELICO and Senior Vice President 1990-
1996 of New England Mutual.
H. James Wilson Executive Vice President and General Counsel of NELICO
since 1996; formerly, Executive Vice President and
General Counsel 1993-1996 of New England Mutual.
John W. Wright President, New England Financial Employee Benefits
Group (a business unit of NELICO) since 1996;
formerly, President 1993-1996 of New England Employee
Benefits Group (a business unit of New England
Mutual).
Frederick K. Zimmermann Executive Vice President and Chief Investment Officer
of NELICO since 1996; formerly, Executive Vice
President and Chief Investment Officer 1993-1996 of
New England Mutual.
</TABLE>
The principal business address for each of the directors and executive
officers is the same as NELICO's except where indicated.
Like all financial services providers, we utilize systems that may be
affected by Year 2000 transition issues and we rely on a number of third
parties, including banks and investment managers, that also may be affected.
We and our affiliates have developed, and are in the process of implementing,
a Year 2000 transition plan. We are also confirming that service providers are
also so engaged. The resources being devoted to this effort are substantial.
We cannot predict whether the resources being devoted, or the outcome of these
efforts, will have any negative impact. If we or our service providers or the
Eligible Funds are not successful in the Year 2000 transition, computer
systems could fail or erroneous results or delays could occur when processing
information after December 31, 1999. However, as of the date of this
prospectus, we do not anticipate that you will experience negative effects on
your investment, or on the Policy services provided, as a result of Year 2000
transition implementation. Currently we have converted our systems to be Year
2000 compliant and are conducting systems testing and compliance verification
which we expect to complete in mid-1999. Service providers may not have
anticipated every step necessary to avoid any adverse effect on the Variable
Account attributable to Year 2000 transition.
VOTING RIGHTS
We own Eligible Fund shares held in the Variable Account and vote those
shares at meetings of the Eligible Fund shareholders. Under Federal securities
law, you currently have the right to instruct us how to vote shares that are
attributable to your Policy.
Policy Owners who are entitled to give voting instructions and the number of
shares attributable to their Policies are determined as of the meeting record
date. If we do not receive timely instructions, we will vote shares in the
same proportion as (i) the aggregate cash value of policies giving
instructions, respectively, to vote for, against, or withhold votes on a
proposition, bears to (ii) the total cash value in that Sub-Account for all
policies for which we receive voting instructions. No voting privileges apply
to the Fixed Account or to cash value removed from the Variable Account due to
a Policy loan.
A-42
<PAGE>
We will vote Eligible Fund shares held by our general account (or any
unregistered separate account for which voting privileges were not extended)
in the same proportion as the total of (i) shares for which voting
instructions were received and (ii) shares that are voted in proportion to
such voting instructions.
The Eligible Funds' Boards of Trustees monitor events to identify conflicts
that may arise from the sale of Eligible Fund shares to variable life and
variable annuity separate accounts of affiliated and, if applicable,
unaffiliated insurance companies. Conflicts could result from changes in state
insurance law or Federal income tax law, changes in investment management of
an Eligible Fund, or differences in voting instructions given by variable life
and variable annuity contract owners. If there is a material conflict, the
Board of Trustees will determine what action should be taken, including the
removal of the affected Sub-Accounts from the Eligible Fund(s), if necessary.
If we believe any Eligible Fund action is insufficient, we will consider
taking other action to protect Policy Owners. There could, however, be
unavoidable delays or interruptions of operations of the Variable Account that
we may be unable to remedy.
We may disregard voting instructions for changes in the investment policy,
investment adviser or principal underwriter of an Eligible Fund portfolio if
required by state insurance law, or if we (i) reasonably disapprove of the
changes and (ii) in the case of a change in investment policy or investment
adviser, make a good faith determination that the proposed change is
prohibited by state authorities or inconsistent with a Sub-Account's
investment objectives. If we do disregard voting instructions, the next annual
report to Policy Owners will include a summary of that action and the reasons
for it.
RIGHTS RESERVED BY NELICO
We and our affiliates may change the voting procedures described above, and
vote Eligible Fund shares without Policy Owner instructions, if the securities
laws change. We also reserve the right: (1) to add sub-accounts; (2) to
combine sub-accounts; (3) to invest sub-account assets as a substitute for
Eligible Fund shares, to close a sub-account, or to transfer assets to our
general account as permitted by applicable law; (4) to operate the Variable
Account as a management investment company under the Investment Company Act of
1940 or in any other form; and (5) to deregister the Variable Account under
the Investment Company Act of 1940. We will exercise these rights in
accordance with applicable law, including approval of Policy Owners if
required. We will notify you if exercise of any of these rights would result
in a material change in the Variable Account or its investments.
TOLL-FREE NUMBERS
For information about historical values of the Variable Account Sub-
Accounts, call 1-800-333-2501.
For Sub-Account transfers, premium reallocations, or Statements of
Additional Information for the Eligible Funds, call 1-800-200-2214.
You may also call our Client TeleService Center at 1-800-388-4000 to request
current information about your Policy values, to change or update Policy
information such as your address, billing mode, beneficiary or ownership, or
to request Policy loans of less than $25,000. Requests must be in writing if
the Policy is owned by a corporation or a pension trust.
For all other Policy changes, please contact your registered representative.
REPORTS
We will send you an annual statement showing your Policy's death benefit,
cash value and any outstanding Policy loan principal. We will also confirm
Policy loans, subaccount transfers, lapses, surrenders and other Policy
transactions when they occur.
You will be sent semiannual reports containing the financial statements of
the Variable Account and the Eligible Funds.
A-43
<PAGE>
ADVERTISING PRACTICES
Professional organizations may endorse the Policies. We may use such
endorsements in Policy sales material. We may pay the professional
organization for the use of its customer or mailing lists to distribute Policy
promotional materials. An endorsement by a third party does not predict the
future performance of the Policies.
Articles discussing the Variable Account's investment performance, rankings
and other characteristics may appear in publications. Some or all of these
publishers or ranking services (including, but not limited to, Lipper
Analytical Services, Inc. and Morningstar, Inc.) may publish their own
rankings or performance reviews of variable contract separate accounts,
including the Variable Account. We may use references to, or reprints of such
articles or rankings as sales material and may include rankings that indicate
the names of other variable contract separate accounts and their investment
experience.
Publications may use articles and releases, developed by NELICO, the
Eligible Funds and other parties, about the Variable Account or the Eligible
Funds. We may use references to or reprints of such articles in sales material
for the Policies or the Variable Account. Such literature may refer to
personnel of the advisers, who have portfolio management responsibility, and
their investment style, and include excerpts from media articles.
We are a member of the Insurance Marketplace Standards Association ("IMSA"),
and may include the IMSA logo and information about IMSA membership in our
advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
Policy sales material may refer to historical, current and prospective
economic trends. In addition, sales material may discuss topics of general
investor interest for the benefit of registered representatives and
prospective Policy Owners. These materials may include, but are not limited
to, discussions of college planning, retirement planning, reasons for
investing and historical examples of the investment performance of various
classes of securities, securities markets and indices.
LEGAL MATTERS
Legal matters in connection with the Policies described in this prospectus
have been passed on by H. James Wilson, General Counsel of NELICO. Sutherland,
Asbill & Brennan LLP, of Washington, D.C., has provided advice on certain
matters relating to federal securities laws.
REGISTRATION STATEMENT
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. Copies of such additional
information may be obtained from the SEC upon payment of the prescribed fee.
EXPERTS
The financial statements of New England Variable Life Separate Account of
New England Life Insurance Company ("NELICO") and the consolidated financial
statements of NELICO and subsidiaries included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Rodney
J. Chandler, F.S.A., M.A.A.A., Second Vice President and Actuary of NELICO, as
stated in his opinion filed as an exhibit to the Registration Statement.
A-44
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS, CASH VALUES,
NET CASH VALUES AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Policies work. They show how
the death benefit, net cash value and cash value could vary over an extended
period of time assuming hypothetical gross rates of return (i.e., investment
income and capital gains and losses, realized or unrealized) for the Variable
Account equal to constant after tax annual rates of 0%, 6% and 12%. The tables
are based on face amounts of $250,000 and $500,000 for a male aged 40. The
insured is assumed to be in the nonsmoker preferred risk classification. The
Tables assume no rider benefits and assume that no allocations are made to the
Fixed Account. Values are first given based on current mortality and other
Policy charges and then based on guaranteed mortality and other Policy
charges. The illustrations for the $500,000 face amount reflect the lower
sales charge and, in the illustrations based on current charges, the cost of
insurance and first-year administrative charges that would apply, for Policies
issued on or after May 1, 1997, to a Policy if issued in the personal market
or if issued in business situations or to tax-qualified pension plans which
qualify for those lower charges. (Policies issued prior to May 1, 1997 imposed
different current cost of insurance rates.) (See "Charges and Expenses".)
Illustrations show Option 1 and Option 2 death benefits.
The illustrated death benefits, net cash values and cash values for a Policy
would be different, either higher or lower, from the amounts shown if the
actual gross rates of return averaged 0%, 6% or 12%, but varied above and
below that average during the period, if premiums were paid in other amounts
or at other than annual intervals. They would also be different depending on
the allocation of cash value among the Variable Account's Sub-Accounts, if the
actual gross rate of return for all Sub-Accounts averaged 0%, 6% or 12%, but
varied above or below that average for individual Sub-Accounts. They would
also differ if a Policy loan or partial surrender were made during the period
of time illustrated, if the insured were female or in another risk
classification, or if the Policies were issued at unisex rates. For example,
as a result of variations in actual returns, additional premium payments
beyond those illustrated may be necessary to maintain the Policy in force for
the periods shown or to realize the Policy values shown on particular
illustrations even if the average rate of return is achieved.
The death benefits, net cash values and cash values shown in the tables
reflect: (i) deductions from premiums for the sales charge and state and
federal premium tax charge; and (ii) a Monthly Deduction (consisting of a
Policy fee, an administrative charge, a minimum death benefit guarantee charge
and a charge for the cost of insurance) from the cash value on the first day
of each Policy month. The net cash values reflect a Surrender Charge deducted
from the cash value upon surrender, face reduction or lapse during the first
11 Policy years. The death benefits, net cash values and cash values also
reflect a daily charge assessed against the Variable Account for mortality and
expense risks equivalent to an annual charge of .75% (on a current basis) and
.90% (on a guaranteed basis) of the average daily value of the assets in the
Variable Account attributable to the Policies. (See "Charges and Expenses".)
The illustrations reflect an average of the investment advisory fees and
operating expenses of the Eligible Funds, at an annual rate of .76% of the
average daily net assets of the Eligible Funds. This average reflects
voluntary expense cap and expense deferral arrangements between New England
Investment Management and the Zenith Fund, that New England Investment
Management could terminate at any time.
Taking account of the mortality and expense risk charge and the average
investment advisory fee and operating expenses of the Eligible Funds, the
gross annual rates of return of 0%, 6% and 12% correspond to net investment
experience at constant annual rates of -1.50%, 4.41% and 10.32%, respectively,
based on the current charge for mortality and expense risks, and -1.65%, 4.25%
and 10.16%, respectively, based on the guaranteed maximum charge for mortality
and expense risks. (See "Net Investment Experience".)
The second column of each table shows the amount which would accumulate if
an amount equal to the annual premium were invested to earn interest, after
taxes, of 5% per year, compounded annually.
The internal rate of return on net cash value is equivalent to an interest
rate (after taxes) at which an amount equal to the illustrated premiums could
have been invested outside the Policy to arrive at the net cash value of the
Policy. The internal rate of return on the death benefit is equivalent to an
interest rate (after taxes) at which an amount equal to the illustrated
premiums could have been invested outside the Policy to arrive at the death
benefit of the Policy. The internal rate of return is compounded annually, and
the premiums are assumed to be paid at the beginning of each Policy year.
If you request, we will furnish a personalized illustration reflecting the
proposed insured's age, sex, underwriting classification, and the face amount
or premium payment schedule requested. Where applicable, we will also furnish
on request an illustration for a Policy which is not affected by the sex of
the insured.
A-45
<PAGE>
Male Issue Age 40
$3,800 Annual Premium for NonSmoker
Preferred Underwriting Risk
$250,000 Face Amount
Option 1 Death Benefit
This illustration is based on CURRENT Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest --------------------------- ------------------------- -------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,990 $ 250,000 $250,000 $250,000 $ 1,733 $ 1,922 $ 2,112 $ 2,831 $ 3,021 $ 3,210
2 8,180 250,000 250,000 250,000 4,599 5,158 5,740 5,729 6,288 6,870
3 12,578 250,000 250,000 250,000 6,693 7,809 9,016 8,556 9,671 10,879
4 17,197 250,000 250,000 250,000 9,491 11,355 13,454 11,291 13,155 15,254
5 22,047 250,000 250,000 250,000 12,237 15,046 18,336 13,975 16,784 20,074
6 27,140 250,000 250,000 250,000 15,156 19,113 23,934 16,604 20,561 25,382
7 32,487 250,000 250,000 250,000 18,002 23,315 30,054 19,161 24,474 31,212
8 38,101 250,000 250,000 250,000 20,815 27,699 36,790 21,684 28,568 37,658
9 43,996 250,000 250,000 250,000 23,549 32,227 44,163 24,128 32,806 44,742
10 50,186 250,000 250,000 250,000 26,250 36,952 52,287 26,540 37,242 52,577
15 86,098 250,000 250,000 250,000 38,216 62,810 106,217 38,216 62,810 106,217
20 131,933 250,000 250,000 252,697 48,032 93,899 194,382 48,032 93,899 194,382
25 190,431 250,000 250,000 406,534 55,098 131,666 338,778 55,098 131,666 338,778
30 265,091 250,000 250,000 657,890 57,811 177,830 572,078 57,811 177,830 572,078
35 360,378 250,000 250,000 997,432 53,684 236,667 949,935 53,684 236,667 949,935
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -54.40% -49.41% -44.41% 6,478.95% 6,478.95% 6,478.95%
2 -29.16 -23.22 -17.32 662.65 662.65 662.65
3 -24.36 -17.76 -11.28 265.39 265.39 265.39
4 -17.97 -11.33 -4.82 152.66 152.66 152.66
5 -14.32 -7.68 -1.18 102.87 102.87 102.87
6 -11.57 -5.02 1.39 75.61 75.61 75.61
7 -9.78 -3.30 3.05 58.68 58.68 58.68
8 -8.49 -2.07 4.23 47.26 47.26 47.26
9 -7.57 -1.19 5.07 39.10 39.10 39.10
10 -6.86 -.51 5.73 33.01 33.01 33.01
15 -5.19 1.20 7.45 17.02 17.02 17.02
20 -4.61 1.97 8.29 10.35 10.35 10.44
25 -4.51 2.43 8.78 6.81 6.81 9.93
30 -4.84 2.73 9.07 4.68 4.68 9.78
35 -5.86 3.00 9.26 3.27 3.27 9.47
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-46
<PAGE>
Male Issue Age 40
$3,800 Annual Premium for NonSmoker
Preferred Underwriting Risk
$250,000 Face Amount
Option 1 Death Benefit
This illustration is based on GUARANTEED Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest -------------------------- ------------------------- -------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,990 $250,000 $250,000 $250,000 $ 1,571 $ 1,753 $ 1,936 $ 2,669 $ 2,851 $ 3,034
2 8,180 250,000 250,000 250,000 4,123 4,652 5,205 5,254 5,783 6,335
3 12,578 250,000 250,000 250,000 5,896 6,939 8,072 7,758 8,802 9,935
4 17,197 250,000 250,000 250,000 8,378 10,106 12,058 10,179 11,906 13,858
5 22,047 250,000 250,000 250,000 10,779 13,364 16,404 12,516 15,101 18,141
6 27,140 250,000 250,000 250,000 13,316 16,935 21,366 14,764 18,383 22,814
7 32,487 250,000 250,000 250,000 15,762 20,595 26,756 16,920 21,753 27,915
8 38,101 250,000 250,000 250,000 18,113 24,343 32,619 18,982 25,212 33,487
9 43,996 250,000 250,000 250,000 20,368 28,182 39,002 20,948 28,762 39,581
10 50,186 250,000 250,000 250,000 22,520 32,110 45,956 22,810 32,399 46,245
15 86,098 250,000 250,000 250,000 30,293 51,798 90,394 30,293 51,798 90,394
20 131,933 250,000 250,000 250,000 33,538 72,604 161,226 33,538 72,604 161,226
25 190,431 250,000 250,000 333,231 30,168 93,800 277,693 30,168 93,800 277,693
30 265,091 250,000 250,000 531,420 14,860 113,234 462,104 14,860 113,234 462,104
35 360,378 250,000 250,000 792,495 0 127,210 754,757 0 127,210 754,757
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -58.66% -53.86% -49.04% 6,478.95% 6,478.95% 6,478.95%
2 -34.45 -28.58 -22.73 662.65 662.65 662.65
3 -29.52 -22.85 -16.29 265.39 265.39 265.39
4 -22.45 -15.68 -9.05 152.66 152.66 152.66
5 -18.33 -11.51 -4.86 102.87 102.87 102.87
6 -15.20 -8.44 -1.85 75.61 75.61 75.61
7 -13.12 -6.40 .15 58.68 58.68 58.68
8 -11.66 -4.96 1.56 47.26 47.26 47.26
9 -10.59 -3.90 2.62 39.10 39.10 39.10
10 -9.79 -3.09 3.43 33.01 33.01 33.01
15 -8.42 -1.21 5.57 17.02 17.02 17.02
20 -8.66 -.44 6.72 10.35 10.35 10.35
25 -10.58 -.10 7.50 6.81 6.81 8.67
30 -20.35 -.04 7.97 4.68 4.68 8.69
35 -- -.25 8.28 3.27 3.27 8.49
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-47
<PAGE>
Male Issue Age 40
$3,800 Annual Premium for NonSmoker
Preferred Underwriting Risk
$250,000 Face Amount
Option 2 Death Benefit
This illustration is based on CURRENT Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest --------------------------- ------------------------- -------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,990 $252,825 $253,014 $ 253,204 $ 1,727 $ 1,916 $ 2,106 $ 2,825 $ 3,014 $ 3,204
2 8,180 255,712 256,269 256,849 4,582 5,139 5,719 5,712 6,269 6,849
3 12,578 258,522 259,632 260,834 6,659 7,770 8,972 8,522 9,632 10,834
4 17,197 261,232 263,084 265,170 9,432 11,284 13,370 11,232 13,084 15,170
5 22,047 263,884 266,671 269,934 12,146 14,933 18,197 13,884 16,671 19,934
6 27,140 266,474 270,393 275,167 15,026 18,945 23,719 16,474 20,393 25,167
7 32,487 268,983 274,235 280,895 17,824 23,077 29,736 18,983 24,235 30,895
8 38,101 271,452 278,245 287,211 20,583 27,376 36,342 21,452 28,245 37,211
9 43,996 273,832 282,377 294,124 23,253 31,798 43,545 23,832 32,377 44,124
10 50,186 276,174 286,690 301,748 25,884 36,400 51,458 26,174 36,690 51,748
15 86,098 287,426 311,349 353,509 37,426 61,349 103,509 37,426 61,349 103,509
20 131,933 296,442 340,357 436,310 46,442 90,357 186,310 46,442 90,357 186,310
25 190,431 301,888 373,048 567,880 51,888 123,048 317,880 51,888 123,048 317,880
30 265,091 301,711 407,611 776,027 51,711 157,611 526,027 51,711 157,611 526,027
35 360,378 292,932 440,621 1,104,943 42,932 190,621 854,943 42,932 190,621 854,943
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -54.55% -49.57% -44.58% 6,553.31% 6,558.28% 6,563.25%
2 -29.34 -23.41 -17.52 671.84 672.73 673.66
3 -24.57 -17.98 -11.51 269.98 270.57 271.20
4 -18.20 -11.57 -5.07 155.90 156.42 157.01
5 -14.56 -7.92 -1.44 105.50 106.02 106.62
6 -11.81 -5.27 1.13 77.91 78.44 79.07
7 -10.03 -3.55 2.79 60.76 61.32 62.01
8 -8.75 -2.33 3.96 49.20 49.79 50.54
9 -7.83 -1.46 4.80 40.93 41.55 42.37
10 -7.12 -.78 5.45 34.75 35.41 36.32
15 -5.47 .91 7.15 18.55 19.42 20.80
20 -4.97 1.62 7.93 11.73 12.83 14.80
25 -5.05 1.94 8.37 8.04 9.39 12.00
30 -5.76 2.01 8.64 5.71 7.31 10.61
35 -7.67 1.92 8.81 4.03 5.92 9.90
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-48
<PAGE>
Male Issue Age 40
$3,800 Annual Premium for NonSmoker
Preferred Underwriting Risk
$250,000 Face Amount
Option 2 Death Benefit
This illustration is based on GUARANTEED Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE Internal Rate of Return
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical on Net Cash Value
Accumulated Gross Annual Gross Annual Gross Annual Assuming Hypothetical Gross
End of at 5% Rate of Return of Rate of Return of Rate of Return of Annual Rate of Return of
Policy Interest -------------------------- ------------------------ ------------------------ -------------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3,990 $252,664 $252,846 $253,028 $ 1,566 $ 1,748 $ 1,930 $ 2,664 $ 2,846 $ 3,028 -58.80% -54.01% -49.21%
2 8,180 255,234 255,761 256,312 4,104 4,631 5,181 5,234 5,761 6,312 -34.68 -28.81 -22.97
3 12,578 257,718 258,755 259,881 5,855 6,892 8,019 7,718 8,755 9,881 -29.80 -23.13 -16.59
4 17,197 260,108 261,822 263,758 8,308 10,022 11,958 10,108 11,822 13,758 -22.75 -15.98 -9.37
5 22,047 262,407 264,966 267,974 10,669 13,228 16,237 12,407 14,966 17,974 -18.65 -11.84 -5.19
6 27,140 264,606 268,179 272,552 13,158 16,731 21,104 14,606 18,179 22,552 -15.54 -8.78 -2.20
7 32,487 266,702 271,460 277,525 15,544 20,302 26,366 16,702 21,460 27,525 -13.47 -6.76 -.22
8 38,101 268,692 274,807 282,925 17,823 23,938 32,057 18,692 24,807 32,925 -12.03 -5.34 1.18
9 43,996 270,572 278,216 288,794 19,993 27,637 38,214 20,572 28,216 38,794 -10.98 -4.29 2.21
10 50,186 272,334 281,681 295,166 22,044 31,391 44,876 22,334 31,681 45,166 -10.20 -3.51 3.00
15 86,098 279,029 299,470 336,083 29,029 49,470 86,083 29,029 49,470 86,083 -9.03 -1.79 5.00
20 131,933 280,793 316,333 396,689 30,793 66,333 146,689 30,793 66,333 146,689 -9.69 -1.31 5.91
25 190,431 275,048 328,662 485,376 25,048 78,662 235,376 25,048 78,662 235,376 -12.80 -1.49 6.42
30 265,091 256,970 329,172 612,498 6,970 79,172 362,498 6,970 79,172 362,498 -35.28 -2.47 6.69
35 360,378 305,193 790,790 55,193 540,790 55,193 540,790 -5.65 6.83
<CAPTION>
Internal Rate of Return
on Death Benefit
Assuming Hypothetical Gross
End of Annual Rate of Return of
Policy --------------------------------
Year 0% 6% 12%
- ------ -- -- ---
<S> <C> <C> <C>
1 6,549.06% 6,553.84% 6,558.62%
2 671.08 671.92 672.80
3 269.55 270.10 270.70
4 155.58 156.06 156.61
5 105.23 105.70 106.26
6 77.65 78.14 78.73
7 60.52 61.03 61.66
8 48.96 49.49 50.18
9 40.69 41.25 42.00
10 34.51 35.10 35.93
15 18.22 18.99 20.25
20 11.29 12.25 14.05
25 7.44 8.58 11.04
30 4.83 6.18 9.41
35 4.22 8.48
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-49
<PAGE>
Male Issue Age 40
$7,600 Annual Premium for NonSmoker
Preferred Underwriting Risk
$500,000 Face Amount
Option 1 Death Benefit
This illustration is based on CURRENT Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest ---------------------------- ---------------------------- ----------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,980 $500,000 $500,000 $ 500,000 $ 3,850 $ 4,242 $ 4,635 $ 6,046 $ 6,438 $ 6,831
2 16,359 500,000 500,000 500,000 9,918 11,084 12,297 12,178 13,344 14,558
3 25,157 500,000 500,000 500,000 14,459 16,795 19,322 18,184 20,520 23,048
4 34,395 500,000 500,000 500,000 20,423 24,336 28,738 24,023 27,936 32,338
5 44,095 500,000 500,000 500,000 26,285 32,193 39,104 29,760 35,668 42,579
6 54,279 500,000 500,000 500,000 32,498 40,830 50,972 35,394 43,726 53,868
7 64,973 500,000 500,000 500,000 38,581 49,783 63,971 40,898 52,100 66,288
8 76,202 500,000 500,000 500,000 44,587 59,116 78,273 46,324 60,854 80,011
9 87,992 500,000 500,000 500,000 50,455 68,786 93,955 51,613 69,944 95,113
10 100,372 500,000 500,000 500,000 56,254 78,876 111,228 56,833 79,455 111,807
15 172,197 500,000 500,000 500,000 81,216 133,333 225,100 81,216 133,333 225,100
20 263,866 500,000 500,000 533,668 101,199 198,246 410,514 101,199 198,246 410,514
25 380,862 500,000 500,000 855,918 115,634 277,234 713,265 115,634 277,234 713,265
30 530,182 500,000 500,000 1,382,912 121,636 374,413 1,202,532 121,636 374,413 1,202,532
35 720,756 500,000 523,649 2,094,848 114,438 498,713 1,995,093 114,438 498,713 1,995,093
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -49.34% -44.18% -39.01% 6,478.95% 6,478.95% 6,478.95%
2 -25.30 -19.29 -13.32 662.65 662.65 662.65
3 -21.11 -14.52 -8.05 265.39 265.39 265.39
4 -15.29 -8.70 -2.24 152.66 152.66 152.66
5 -12.04 -5.48 .96 102.87 102.87 102.87
6 -9.61 -3.15 3.19 75.61 75.61 75.61
7 -8.04 -1.66 4.61 58.68 58.68 58.68
8 -6.94 -.62 5.59 47.26 47.26 47.26
9 -6.16 .11 6.29 39.10 39.10 39.10
10 -5.55 .67 6.82 33.01 33.01 33.01
15 -4.37 1.93 8.11 17.02 17.02 17.02
20 -4.06 2.47 8.74 10.35 10.35 10.88
25 -4.08 2.79 9.10 6.81 6.81 10.25
30 -4.44 3.03 9.32 4.68 4.68 10.03
35 -5.38 3.26 9.47 3.27 3.49 9.67
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-50
<PAGE>
Male Issue Age 40
$7,600 Annual Premium for NonSmoker
Preferred Underwriting Risk
$500,000 Face Amount
Option 1 Death Benefit
This illustration is based on GUARANTEED Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest ---------------------------- --------------------------- ---------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,980 $500,000 $500,000 $ 500,000 $ 3,530 $ 3,909 $ 4,289 $ 5,726 $ 6,105 $ 6,486
2 16,359 500,000 500,000 500,000 8,787 9,891 11,043 11,048 12,151 13,303
3 25,157 500,000 500,000 500,000 12,483 14,656 17,016 16,208 18,381 20,741
4 34,395 500,000 500,000 500,000 17,597 21,191 25,252 21,198 24,791 28,852
5 44,095 500,000 500,000 500,000 22,545 27,917 34,235 26,020 31,392 37,710
6 54,279 500,000 500,000 500,000 27,766 35,280 44,482 30,662 38,176 47,378
7 64,973 500,000 500,000 500,000 32,801 42,830 55,620 35,118 45,147 57,937
8 76,202 500,000 500,000 500,000 37,646 50,569 67,741 39,383 52,306 69,479
9 87,992 500,000 500,000 500,000 42,297 58,501 80,946 43,455 59,659 82,104
10 100,372 500,000 500,000 500,000 46,740 66,622 95,341 47,320 67,202 95,920
15 172,197 500,000 500,000 500,000 62,974 107,560 187,595 62,974 107,560 187,595
20 263,866 500,000 500,000 500,000 70,169 151,253 335,124 70,169 151,253 335,124
25 380,862 500,000 500,000 692,531 64,216 196,598 577,110 64,216 196,598 577,110
30 530,182 500,000 500,000 1,103,642 34,620 240,087 959,689 34,620 240,087 959,689
35 720,756 500,000 500,000 1,645,165 276,377 1,566,824 276,377 1,566,824
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -53.55% -48.57% -43.56% 6,478.95% 6,478.95% 6,478.95%
2 -31.42 -25.44 -19.50 662.65 662.65 662.65
3 -27.23 -20.52 -13.93 265.39 265.39 265.39
4 -20.71 -13.92 -7.29 152.66 152.66 152.66
5 -16.92 -10.11 -3.46 102.87 102.87 102.87
6 -14.03 -7.29 -.71 75.61 75.61 75.61
7 -12.12 -5.42 1.11 58.68 58.68 58.68
8 -10.78 -4.11 2.40 47.26 47.26 47.26
9 -9.80 -3.14 3.35 39.10 39.10 39.10
10 -9.07 -2.41 4.08 33.01 33.01 33.01
15 -7.87 -.73 6.01 17.02 17.02 17.02
20 -8.12 -.05 7.04 10.35 10.35 10.35
25 -9.87 .26 7.75 6.81 6.81 8.92
30 -17.96 .33 8.16 4.68 4.68 8.88
35 -- .21 8.44 3.27 3.27 8.65
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-51
<PAGE>
Male Issue Age 40
$7,600 Annual Premium for NonSmoker
Preferred Underwriting Risk
$500,000 Face Amount
Option 2 Death Benefit
This illustration is based on CURRENT Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest ---------------------------- ---------------------------- ----------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,980 $506,037 $506,429 $ 506,822 $ 3,841 $ 4,233 $ 4,626 $ 6,037 $ 6,429 $ 6,822
2 16,359 512,153 513,316 514,527 9,892 11,056 12,266 12,153 13,316 14,527
3 25,157 518,132 520,461 522,980 14,407 16,736 19,255 18,132 20,461 22,980
4 34,395 523,933 527,829 532,211 20,332 24,228 28,610 23,933 27,829 32,211
5 44,095 529,621 535,496 542,367 26,146 32,021 38,892 29,621 35,496 42,367
6 54,279 535,195 543,471 553,541 32,299 40,575 50,645 35,195 43,471 53,541
7 64,973 540,626 551,736 565,805 38,309 49,419 63,488 40,626 51,736 65,805
8 76,202 545,970 560,360 579,329 44,233 58,623 77,591 45,970 60,360 79,329
9 87,992 551,160 569,289 594,169 50,002 68,130 93,011 51,160 69,289 94,169
10 100,372 556,272 578,611 610,542 55,693 78,032 109,963 56,272 78,611 110,542
15 172,197 579,857 630,855 720,549 79,857 130,855 220,549 79,857 130,855 220,549
20 263,866 598,169 691,585 895,604 98,169 191,585 395,604 98,169 191,585 395,604
25 380,862 609,257 760,254 1,174,092 109,257 260,254 674,092 109,257 260,254 674,092
30 530,182 609,305 833,716 1,615,761 109,305 333,716 1,115,761 109,305 333,716 1,115,761
35 720,756 592,457 905,504 2,315,513 92,457 405,504 1,815,513 92,457 405,504 1,815,513
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -49.46% -44.30% -39.14% 6,558.39% 6,563.54% 6,568.70%
2 -25.44 -19.44 -13.47 672.43 673.36 674.32
3 -21.26 -14.68 -8.22 270.27 270.88 271.55
4 -15.46 -8.87 -2.41 156.11 156.66 157.27
5 -12.21 -5.65 .77 105.67 106.22 106.84
6 -9.78 -3.33 3.01 78.06 78.62 79.28
7 -8.22 -1.84 4.42 60.91 61.49 62.21
8 -7.12 -.81 5.40 49.33 49.95 50.74
9 -6.34 -.08 6.09 41.06 41.71 42.58
10 -5.74 .48 6.62 34.88 35.57 36.52
15 -4.60 1.70 7.88 18.64 19.56 21.00
20 -4.38 2.16 8.43 11.80 12.96 15.00
25 -4.58 2.34 8.75 8.10 9.51 12.21
30 -5.30 2.35 8.94 5.76 7.43 10.81
35 -7.05 2.23 9.07 4.08 6.04 10.09
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-52
<PAGE>
Male Issue Age 40
$7,600 Annual Premium for NonSmoker
Preferred Underwriting Risk
$500,000 Face Amount
Option 2 Death Benefit
This illustration is based on GUARANTEED Policy charges.
<TABLE>
<CAPTION>
DEATH BENEFIT NET CASH VALUE CASH VALUE
Premiums Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
Accumulated Gross Annual Gross Annual Gross Annual
End of at 5% Rate of Return of Rate of Return of Rate of Return of
Policy Interest ---------------------------- --------------------------- ---------------------------
Year Per Year 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ------ ----------- -- -- --- -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,980 $505,718 $506,096 $ 506,476 $ 3,522 $ 3,900 $ 4,280 $ 5,718 $ 6,096 $ 6,476
2 16,359 511,010 512,110 513,258 8,750 9,850 10,997 11,010 12,110 13,258
3 25,157 516,126 518,287 520,634 12,401 14,562 16,909 16,126 18,287 20,634
4 34,395 521,054 524,620 528,649 17,454 21,020 25,049 21,054 24,620 28,649
5 44,095 525,796 531,114 537,368 22,321 27,639 33,892 25,796 31,114 37,368
6 54,279 530,336 537,757 546,841 27,440 34,861 43,945 30,336 37,757 46,841
7 64,973 534,668 544,543 557,134 32,351 42,227 54,817 34,668 44,543 57,134
8 76,202 538,784 551,470 568,320 37,046 49,733 66,582 38,784 51,470 68,320
9 87,992 542,679 558,533 580,479 41,520 57,375 79,320 42,679 58,533 80,479
10 100,372 546,336 565,717 593,689 45,756 65,138 93,110 46,336 65,717 93,689
15 172,197 560,357 602,740 678,669 60,357 102,740 178,669 60,357 102,740 178,669
20 263,866 564,466 638,244 804,985 64,466 138,244 304,985 64,466 138,244 304,985
25 380,862 553,512 665,094 990,642 53,512 165,094 490,642 53,512 165,094 490,642
30 530,182 517,849 668,814 1,258,330 17,849 168,814 758,330 17,849 168,614 758,330
35 720,756 624,187 1,636,753 124,187 1,136,753 124,187 1,136,753
<CAPTION>
Internal Rate of Return Internal Rate of Return
on Net Cash Value on Death Benefit
Assuming Hypothetical Gross Assuming Hypothetical Gross
End of Annual Rate of Return of Annual Rate of Return of
Policy -------------------------------- --------------------------------
Year 0% 6% 12% 0% 6% 12%
- ------ -- -- --- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
1 -53.66% -48.68% -43.69% 6,554.18% 6,559.16% 6,564.16%
2 -31.62 -25.66 -19.73 671.51 672.39 673.31
3 -27.50 -20.80 -14.22 269.73 270.31 270.93
4 -21.00 -14.23 -7.60 155.70 156.20 156.77
5 -17.24 -10.43 -3.79 105.32 105.81 106.39
6 -14.36 -7.63 -1.06 77.73 78.23 78.84
7 -12.47 -5.78 .75 60.59 61.11 61.77
8 -11.15 -4.48 2.02 49.02 49.57 50.28
9 -10.19 -3.54 2.95 40.74 41.33 42.10
10 -9.48 -2.83 3.66 34.56 35.18 36.03
15 -8.47 -1.31 5.43 18.27 19.06 20.35
20 -9.14 -.91 6.25 11.33 12.32 14.16
25 -11.99 -1.10 6.69 7.48 8.66 11.16
30 -29.86 -2.02 6.93 4.87 6.26 9.55
35 -4.78 7.05 4.33 8.63
</TABLE>
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL
GROSS RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON
A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICY
OWNER, THE FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A POLICY OWNER, AND THE
INVESTMENT EXPERIENCE OF THE POLICY'S SUB-ACCOUNTS. THE DEATH BENEFIT, CASH
VALUE AND NET CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD
OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOAN WERE MADE DURING THE PERIOD. NO
REPRESENTATIONS CAN BE MADE BY NELICO OR THE ELIGIBLE FUNDS THAT THOSE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-53
<PAGE>
APPENDIX B
INVESTMENT EXPERIENCE INFORMATION
This Appendix gives hypothetical illustrations of the Variable Account's and
the Policy's investment experience based on the historical investment
experience of the Eligible Funds. It does not predict future performance.
The Policies became available August, 1995. The Zenith Fund and the Variable
Account commenced operations on August 26, 1983. The Westpeak Stock Index and
Back Bay Advisors Managed Series of the Zenith Fund commenced operations on
May 1, 1987. The Westpeak Growth and Income Series and Goldman Sachs Midcap
Value Series of the Zenith Fund commenced operations on April 30, 1993. The
Loomis Sayles Small Cap Series of the Zenith Fund commenced operations on May
2, 1994. The remaining Zenith Fund Series shown in this Appendix commenced
operations on October 31, 1994. The VIP Equity-Income Portfolio and VIP
Overseas Portfolio commenced operations on October 9, 1986 and January 28,
1987, respectively. The VIP High Income Portfolio and the VIP II Asset Manager
Portfolio commenced operations on September 19, 1985 and September 6, 1989,
respectively.
We base the illustrations on the actual investment experience of the
relevant Eligible Funds for the periods shown (net of actual charges and
expenses incurred by the Eligible Funds), and reflect a charge for mortality
and expense risks against the Variable Account's assets at the currently
applicable annual rate of .75%. The illustrations assume that premiums are
paid at the beginning of each year and that no loans, transfers or other
Policy Owner transactions were made during the periods shown.
Many factors other than investment experience affect Policy values and
benefits. These investment experience figures do not reflect the charges
deducted from Premiums and Monthly Deductions from the cash value. (See
"Charges and Expenses".)
Net Rates of Return
The annual net rate is the effective earnings rate at which the investment
Sub-Accounts increased or decreased over a one-year period, based on the
investment experience of the relevant Eligible Funds. The rate is calculated
by taking the difference between the Sub-Accounts' ending values and beginning
values of the period and dividing it by the beginning values of the period.
The effective annual net rate of return since inception is the annualized
effective interest rate at which the Sub-Accounts increased or decreased since
the inception dates of the Sub-Accounts. For each Sub-Account, we calculate
the rate by taking the difference between the Sub-Account's ending value and
the value on the date of its inception and dividing it by the value on the
date of inception. This result is the total net rate of return since inception
("Total Return"). The effective annual net rate of return is the rate which,
if compounded annually, would equal the total net rate of return since
inception.
A-54
<PAGE>
Sub-Account Investing in Zenith Fund
<TABLE>
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------------------------------------------
Sub-Account For One Year Ending
- ----------- 8/26/83- --------------------------------------------------------------------------------------------------
12/31/83 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth*. 8.58% -1.11% 66.84% 93.75% 51.56% -9.47% 31.88% -5.73% 52.83% -6.75% 14.11% -7.76%
Bond Income..... 2.77% 11.93 17.87 13.98 1.50 7.56 11.46 7.28 17.08 7.37 11.77 -4.08
Money Market.... 3.03% 9.80 7.45 6.01 5.73 6.71 8.44 7.38 5.42 3.02 2.20 3.20
<CAPTION>
8/26/83- 8/26/83-
Sub-Account 12/31/98 12/31/98
- ----------- Total Effective
12/31/95 12/31/96 12/31/97 12/31/98 Return Annual
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Capital Growth*. 37.00% 20.16% 22.56% 33.09% 2,285.11% 22.96%
Bond Income..... 20.29 3.82 10.06 8.23 304.47 9.53
Money Market.... 4.91 4.34 4.55 4.48 131.85 5.63
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------------------------------------------
Sub-Account For One Year Ending
- ----------- 5/1/87- --------------------------------------------------------------------------------------------------
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index..... -13.06% 15.47% 29.18% -4.86% 29.46% 6.49% 8.90% .36% 35.90% 21.55% 31.51% 26.98%
Managed......... -1.15% 8.67 18.20 2.44 19.28 5.90 9.82 -1.85 30.28 14.16 25.62 18.76
<CAPTION>
5/1/87- 5/1/87-
Sub-Account 12/31/98 12/31/98
- ----------- Total Effective
Return Annual
-------- ---------
<S> <C> <C>
Stock Index..... 415.27% 15.09%
Managed......... 292.90 12.44
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
----------------------------------------------------- 4/30/93- 4/30/93-
Sub-Account For One Year Ending 12/31/98 12/31/98
- ----------- 4/30/93 -------------------------------------------- Total Effective
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 Return Annual
-------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income....... 13.67% -1.94% 35.45% 17.21% 32.47% 23.52% 189.55% 20.62%
Midcap Value**.......... 14.16 -1.01 29.38 16.72 16.45 -6.17 86.47 11.62
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
-------------------------------------------- 5/2/94 5/2/94
Sub-Account For One Year Ending 12/31/98 12/31/98
- ----------- 5/2/94- ----------------------------------- Total Effective
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 Return Annual
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Small Cap...... -3.71% 27.88% 29.70% 23.92% -2.43% 93.11% 15.15%
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
-------------------------------------------- 10/31/94- 10/31/94-
Sub-Account For One Year Ending 12/31/98 12/31/98
- ----------- 10/31/94 ----------------------------------- Total Effective
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 Return Annual
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........... -4.32% 47.59% 12.32% 24.69% 46.68% 190.10% 29.12%
Balanced................ -.22 23.86 16.03 15.31 8.29 79.07 15.01
Venture Value........... -3.62 38.25 24.89 32.50 13.56 150.40 24.64
International Magnum
Equity***.............. 2.48 5.44 5.87 -2.04 6.47 19.32 4.33
</TABLE>
- -------
* Rates of return reflect the Capital Growth Series' former investment
advisory fee of .50% of average daily net assets for the period through
December 31, 1987 and its current advisory fee schedule thereafter.
** The Goldman Sachs Midcap Value Series' Sub-adviser was Loomis Sayles until
May 1, 1998, when Goldman Sachs Asset Management became the sub-adviser.
Rates of return reflect the Series' former investment advisory fee of .70%
of average daily net assets for the period through April 30, 1998, and .75%
thereafter.
*** The Morgan Stanley International Magnum Equity Series' sub-adviser was
Draycott Partners until May 1, 1997, when Morgan Stanley Dean Witter
Investment Management became sub-adviser.
Sub-Accounts Investing in VIP
<TABLE>
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------------------------------------------
Sub-Account For One Year Ending
- ----------- 10/9/86- --------------------------------------------------------------------------------------------------
12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income... .03% -1.87% 21.79% 16.47% -15.93% 30.46% 16.01% 17.41% 6.27% 34.09% 13.42% 27.15%
<CAPTION>
10/9/86- 10/9/86-
Sub-Account 12/31/98 12/31/98
- ----------- Total Effective
12/31/98 Return Annual
-------- -------- ---------
<S> <C> <C> <C>
Equity-Income... 10.79% 373.61% 13.56%
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------------------------------------------
For One Year Ending
1/28/87- --------------------------------------------------------------------------------------------------
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas........ -6.03% 7.32% 25.34% -2.40% 7.19% -11.39% 36.33% .97% 8.86% 12.36% 10.72% 11.91%
<CAPTION>
1/28/88- 1/28/87-
12/31/98 12/31/98
Total Effective
Return Annual
-------- ---------
<S> <C> <C>
Overseas........ 144.44% 7.78%
</TABLE>
<TABLE>
<CAPTION>
Annual Net Rate of Return
-----------------------------------------------------------------------------------------------------------
Sub-Account For One Year Ending
- ----------- 9/19/85- --------------------------------------------------------------------------------------------------
12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income..... 6.15% 16.80% 0.46% 10.81% -4.89% -2.97% 34.07% 22.24% 19.50% -2.28% 19.71% 13.17%
<CAPTION>
9/19/85- 9/19/85-
Sub-Account 12/31/98 12/31/98
- ----------- Total Effective
12/31/97 12/31/98 Return Annual
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
High Income..... 16.79% -5.04% 266.26% 10.27%
</TABLE>
Sub-Account Investing in VIP II
<TABLE>
<CAPTION>
Annual Net Rate of Return
----------------------------------------------------------------------------------------- 9/6/89- 9/6/89-
Sub-Account For One Year Ending 12/31/98 12/31/98
- ----------- 9/6/89- -------------------------------------------------------------------------------- Total Effective
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 Return Annual
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Manager... .57% 5.92% 21.64% 10.88% 20.33% -6.79% 16.08% 13.74% 19.75% 14.19% 190.94% 12.15%
</TABLE>
A-55
<PAGE>
Policy Performance
The material below assumes a Policy was issued with a $250,000 and $500,000
face amount, respectively, with annual premiums paid on August 26 of each year
(May 1 in the case of the Zenith Stock Index, Zenith Managed and Zenith Small
Cap Sub-Accounts; October 31 in the case of the Zenith Balanced, Zenith
International Magnum Equity, Zenith Venture Value and Zenith Equity Growth
Sub-Accounts; October 9 in the case of the Equity-Income Sub-Account, January
28 in the case of the Overseas Sub-Account; April 30 in the case of the Zenith
Growth and Income and Zenith Midcap Value Sub-Accounts; September 19 in the
case of the High Income Sub-Account; September 6 in the case of the Asset
Manager Sub-Account), to a male age 40 in the nonsmoker preferred risk
category. Values and benefits are shown first for Policies with the Option 1
death benefit and then for the Policies with the Option 2 death benefit. The
death benefits, cash values and internal rates of return assume in each
instance that the entire policy value was invested in the particular Sub-
Account for the period shown. The illustrations of Policy investment
experience reflect all Policy charges based on NELICO's current rates. The
illustrations for the $500,000 face amount reflect the lower sales charge,
cost of insurance and first-year administrative charges that would apply to
the Policy if issued in the personal market or if issued in business
situations or to tax-qualified pension plans which qualify for those lower
charges. (See "Charges and Expenses".) (See Appendix A for the definition of
the internal rate of return.)
Male Nonsmoker Preferred Risk, Age 40
$250,000 Face Amount
Option 1 Death Benefit
Zenith Capital Growth Sub-Account*
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1983....... 3,800 250,000 250,000 3,595 2,497 -70.10% --
December 31, 1984....... 7,600 250,000 250,000 6,449 5,282 -36.87 2,058.98%
December 31, 1985....... 11,400 250,000 250,000 14,356 12,457 6.69 447.23
December 31, 1986....... 15,200 250,000 250,000 30,701 28,865 36.91 212.13
December 31, 1987....... 19,000 250,000 250,000 48,772 46,998 40.24 130.64
December 31, 1988....... 22,800 250,000 250,000 47,157 45,540 24.45 91.23
December 31, 1989....... 26,600 250,000 250,000 64,192 62,865 25.46 68.52
December 31, 1990....... 30,400 250,000 250,000 64,000 62,962 18.51 53.94
December 31, 1991....... 34,200 250,000 250,000 101,174 100,426 23.83 43.89
December 31, 1992....... 38,000 250,000 250,000 97,663 97,204 18.50 36.58
December 31, 1993....... 41,800 250,000 250,000 114,634 114,465 17.81 31.06
December 31, 1994....... 45,600 250,000 250,000 107,755 107,755 13.90 26.76
December 31, 1995....... 49,400 250,000 260,741 152,480 152,480 16.49 23.90
December 31, 1996....... 53,200 250,000 305,438 186,243 186,243 16.81 23.04
December 31, 1997....... 57,000 250,000 363,084 231,264 231,264 17.31 22.52
December 31, 1998....... 60,800 250,000 466,762 311,175 311,175 18.62 22.94
</TABLE>
A-56
<PAGE>
Zenith Bond Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1983....... 3,800 250,000 250,000 3,387 2,289 -76.70% --
December 31, 1984....... 7,600 250,000 250,000 6,954 5,788 -28.68 2,058.98%
December 31, 1985....... 11,400 250,000 250,000 11,342 9,443 -13.49 447.23
December 31, 1986....... 15,200 250,000 250,000 15,940 14,104 -4.02 212.13
December 31, 1987....... 19,000 250,000 250,000 19,137 17,363 -3.83 130.64
December 31, 1988....... 22,800 250,000 250,000 23,555 21,938 -1.35 91.23
December 31, 1989....... 26,600 250,000 250,000 29,233 27,906 1.43 68.52
December 31, 1990....... 30,400 250,000 250,000 34,407 33,369 2.41 53.94
December 31, 1991....... 34,200 250,000 250,000 43,411 42,663 5.02 43.89
December 31, 1992....... 38,000 250,000 250,000 49,494 49,035 5.17 36.58
December 31, 1993....... 41,800 250,000 250,000 58,208 58,039 5.99 31.06
December 31, 1994....... 45,600 250,000 250,000 58,580 58,580 4.20 26.76
December 31, 1995....... 49,400 250,000 250,000 73,733 73,733 6.10 23.33
December 31, 1996....... 53,200 250,000 250,000 79,697 79,697 5.70 20.53
December 31, 1997....... 57,000 250,000 250,000 90,831 90,831 6.08 18.22
December 31, 1998....... 60,800 250,000 250,000 101,401 101,401 6.21 16.27
Zenith Money Market Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1983....... 3,800 250,000 250,000 3,394 2,296 -76.49% --
December 31, 1984....... 7,600 250,000 250,000 6,742 5,575 -32.12 2,058.98%
December 31, 1985....... 11,400 250,000 250,000 10,290 8,391 -21.47 447.23
December 31, 1986....... 15,200 250,000 250,000 13,899 12,062 -12.27 212.13
December 31, 1987....... 19,000 250,000 250,000 17,667 15,893 -7.57 130.64
December 31, 1988....... 22,800 250,000 250,000 21,839 20,222 -4.22 91.23
December 31, 1989....... 26,600 250,000 250,000 26,633 25,306 -1.49 68.52
December 31, 1990....... 30,400 250,000 250,000 31,528 30,491 .08 53.94
December 31, 1991....... 34,200 250,000 250,000 36,147 35,399 .79 43.89
December 31, 1992....... 38,000 250,000 250,000 40,112 39,654 .88 36.58
December 31, 1993....... 41,800 250,000 250,000 43,877 43,708 .83 31.06
December 31, 1994....... 45,600 250,000 250,000 48,211 48,211 .95 26.76
December 31, 1995....... 49,400 250,000 250,000 53,523 53,523 1.25 23.33
December 31, 1996....... 53,200 250,000 250,000 58,809 58,809 1.45 20.53
December 31, 1997....... 57,000 250,000 250,000 64,451 64,451 1.65 18.22
December 31, 1998....... 60,800 250,000 250,000 70,261 70,261 1.82 16.27
</TABLE>
Zenith Stock Index Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1987....... 3,800 250,000 250,000 2,724 1,626 -71.91% --
December 31, 1988....... 7,600 250,000 250,000 6,297 5,146 -29.28 1,070.47%
December 31, 1989....... 11,400 250,000 250,000 11,885 10,001 -7.66 337.59
December 31, 1990....... 15,200 250,000 250,000 14,073 12,252 -9.74 178.58
December 31, 1991....... 19,000 250,000 250,000 21,453 19,694 1.35 115.51
December 31, 1992....... 22,800 250,000 250,000 25,960 24,415 2.16 82.89
December 31, 1993....... 26,600 250,000 250,000 31,373 30,118 3.38 63.34
December 31, 1994....... 30,400 250,000 250,000 34,450 33,485 2.31 50.46
December 31, 1995....... 34,200 250,000 250,000 50,740 50,064 8.04 41.41
December 31, 1996....... 38,000 250,000 250,000 64,534 64,147 9.89 34.74
December 31, 1997....... 41,800 250,000 250,000 88,520 88,424 12.72 29.65
December 31, 1998....... 45,600 250,000 250,000 115,706 115,706 14.34 25.65
</TABLE>
A-57
<PAGE>
Zenith Managed Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1987....... 3,800 250,000 250,000 3,089 1,991 -61.97% --
December 31, 1988....... 7,600 250,000 250,000 6,472 5,321 -27.08 1,070.47%
December 31, 1989....... 11,400 250,000 250,000 11,123 9,239 -12.13 337.59
December 31, 1990....... 15,200 250,000 250,000 14,449 12,628 -8.40 178.58
December 31, 1991....... 19,000 250,000 250,000 20,467 18,708 -.58 115.51
December 31, 1992....... 22,800 250,000 250,000 24,833 23,289 .67 82.89
December 31, 1993....... 26,600 250,000 250,000 30,320 29,065 2.41 63.34
December 31, 1994....... 30,400 250,000 250,000 32,696 31,731 1.03 50.46
December 31, 1995....... 34,200 250,000 250,000 46,293 45,617 6.10 41.41
December 31, 1996....... 38,000 250,000 250,000 55,802 55,416 7.16 34.74
December 31, 1997....... 41,800 250,000 250,000 73,610 73,514 9.66 29.65
December 31, 1998....... 45,600 250,000 250,000 90,559 90,559 10.67 25.65
Zenith Growth and Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1993....... 3,800 250,000 250,000 3,516 2,418 -49.02% --
December 31, 1994....... 7,600 250,000 250,000 6,432 5,286 -27.45 1,065.53%
December 31, 1995....... 11,400 250,000 250,000 12,427 10,549 -4.58 336.86
December 31, 1996....... 15,200 250,000 250,000 17,826 16,010 2.40 178.34
December 31, 1997....... 19,000 250,000 250,000 27,321 25,568 11.28 115.39
December 31, 1998....... 22,800 250,000 250,000 36,875 35,355 13.94 82.83
Zenith Midcap Value Sub-Account**
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1993....... 3,800 250,000 250,000 3,533 2,435 -48.48% --
December 31, 1994....... 7,600 250,000 250,000 6,498 5,352 -26.62 1,065.53%
December 31, 1995....... 11,400 250,000 250,000 12,111 10,232 -6.34 336.86
December 31, 1996....... 15,200 250,000 250,000 17,255 15,440 .72 178.34
December 31, 1997....... 19,000 250,000 250,000 23,595 21,842 5.25 115.39
December 31, 1998....... 22,800 250,000 250,000 24,445 22,925 0.17 82.83
Zenith Small Cap Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1994....... 3,800 250,000 250,000 2,967 1,869 -65.57% --
December 31, 1995....... 7,600 250,000 250,000 7,399 6,248 -15.73 1,075.45%
December 31, 1996....... 11,400 250,000 250,000 12,998 11,115 -1.51 338.33
December 31, 1997....... 15,200 250,000 250,000 19,843 18,022 8.00 178.83
December 31, 1998....... 19,000 250,000 250,000 21,871 20,113 2.14 115.62
Zenith Balanced Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1994....... 3,800 250,000 250,000 3,396 2,297 -95.08% --
December 31, 1995....... 7,600 250,000 250,000 7,235 6,058 -30.57 3,427.00%
December 31, 1996....... 11,400 250,000 250,000 11,455 9,545 -14.73 539.22
December 31, 1997....... 15,200 250,000 250,000 16,218 14,371 -3.35 236.33
December 31, 1998....... 19,000 250,000 250,000 20,644 18,859 -.34 140.81
</TABLE>
A-58
<PAGE>
Zenith International Magnum Equity Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1994....... 3,800 250,000 250,000 3,480 2,381 -93.90% --
December 31, 1995....... 7,600 250,000 250,000 6,788 5,610 -39.45 3,427.00%
December 31, 1996....... 11,400 250,000 250,000 10,209 8,299 -25.70 539.22
December 31, 1997....... 15,200 250,000 250,000 12,897 11,050 -18.72 236.33
December 31, 1998....... 19,000 250,000 250,000 16,751 14,967 -10.98 140.81
Zenith Venture Value Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1994....... 3,800 250,000 250,000 3,290 2,192 -96.28% --
December 31, 1995....... 7,600 250,000 250,000 7,552 6,375 -24.26 3,427.00%
December 31, 1996....... 11,400 250,000 250,000 12,529 10,620 -5.99 539.22
December 31, 1997....... 15,200 250,000 250,000 19,610 17,763 9.46 236.33
December 31, 1998....... 19,000 250,000 250,000 25,435 23,651 10.16 140.81
Zenith Equity Growth Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1994....... 3,800 250,000 250,000 3,210 2,112 -97.02% --
December 31, 1995....... 7,600 250,000 250,000 7,556 6,379 -24.19 3,427.00%
December 31, 1996....... 11,400 250,000 250,000 11,536 9,627 -14.05 539.22
December 31, 1997....... 15,200 250,000 250,000 17,349 15,502 1.18 236.33
December 31, 1998....... 19,000 250,000 250,000 28,914 27,130 16.60 140.81
Equity-Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1986....... 3,800 250,000 250,000 3,412 2,314 -88.72% --
December 31, 1987....... 7,600 250,000 250,000 5,714 4,537 -56.07 2,847.86%
December 31, 1988....... 11,400 250,000 250,000 9,836 7,926 -27.71 505.26
December 31, 1989....... 15,200 250,000 250,000 14,430 12,583 -10.78 227.75
December 31, 1990....... 19,000 250,000 250,000 15,194 13,409 -15.57 137.27
December 31, 1991....... 22,800 250,000 250,000 22,911 21,246 -2.59 94.76
December 31, 1992....... 26,600 250,000 250,000 29,788 28,413 2.04 70.66
December 31, 1993....... 30,400 250,000 250,000 37,838 36,752 5.04 55.37
December 31, 1994....... 34,200 250,000 250,000 43,003 42,207 4.91 44.89
December 31, 1995....... 38,000 250,000 250,000 61,052 60,545 9.56 37.32
December 31, 1996....... 41,800 250,000 250,000 71,996 71,779 9.95 31.62
December 31, 1997....... 45,600 250,000 250,000 94,468 94,468 12.06 27.20
December 31, 1998....... 49,400 250,000 250,000 108,317 108,317 11.87 23.68
</TABLE>
A-59
<PAGE>
Overseas Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1987....... 3,800 250,000 250,000 2,716 1,617 -60.35% --
December 31, 1988....... 7,600 250,000 250,000 6,345 5,215 -23.74 731.16%
December 31, 1989....... 11,400 250,000 250,000 11,392 9,530 -9.04 279.55
December 31, 1990....... 15,200 250,000 250,000 14,076 12,276 -8.63 158.04
December 31, 1991....... 19,000 250,000 250,000 18,251 16,513 -4.76 105.56
December 31, 1992....... 22,800 250,000 250,000 18,677 17,229 -8.14 77.19
December 31, 1993....... 26,600 250,000 250,000 29,372 28,214 1.50 59.70
December 31, 1994....... 30,400 250,000 250,000 32,308 31,439 .76 47.97
December 31, 1995....... 34,200 250,000 250,000 38,892 38,313 2.30 39.61
December 31, 1996....... 38,000 250,000 250,000 46,643 46,353 3.63 33.39
December 31, 1997....... 41,800 250,000 250,000 54,951 54,951 4.55 28.61
December 31, 1998....... 45,600 250,000 250,000 64,708 64,708 5.34 24.82
High Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1985....... 3,800 250,000 250,000 3,559 2,461 -78.56% --
December 31, 1986....... 7,600 250,000 250,000 7,202 6,030 -26.74 2,440.56%
December 31, 1987....... 11,400 250,000 250,000 10,170 8,266 -23.62 477.39
December 31, 1988....... 15,200 250,000 250,000 14,246 12,404 -11.22 220.41
December 31, 1989....... 19,000 250,000 250,000 16,326 14,546 -11.64 134.18
December 31, 1990....... 22,800 250,000 250,000 18,708 17,067 -10.46 93.12
December 31, 1991....... 26,600 250,000 250,000 28,064 26,712 .13 69.67
December 31, 1992....... 30,400 250,000 250,000 37,180 36,118 4.52 54.71
December 31, 1993....... 34,200 250,000 250,000 47,453 46,681 7.14 44.43
December 31, 1994....... 38,000 250,000 250,000 49,251 48,768 5.13 36.98
December 31, 1995....... 41,800 250,000 250,000 62,005 61,812 7.20 31.37
December 31, 1996....... 45,600 250,000 250,000 73,008 73,008 7.85 27.00
December 31, 1997....... 49,400 250,000 250,000 88,272 88,272 8.82 23.52
December 31, 1998....... 53,200 250,000 250,000 87,043 87,043 6.95 20.69
Asset Manager Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 3,800 $250,000 $250,000 $ 3,525 $ 2,427 -- --
December 31, 1989....... 3,800 250,000 250,000 3,385 2,287 -79.75% --
December 31, 1990....... 7,600 250,000 250,000 6,666 5,494 -34.56 2,221.58%
December 31, 1991....... 11,400 250,000 250,000 11,186 9,282 -15.01 460.64
December 31, 1992....... 15,200 250,000 250,000 15,449 13,607 -6.03 215.86
December 31, 1993....... 19,000 250,000 250,000 21,687 19,908 2.02 132.24
December 31, 1994....... 22,800 250,000 250,000 22,918 21,277 -2.46 92.09
December 31, 1995....... 26,600 250,000 250,000 29,747 28,396 1.97 69.04
December 31, 1996....... 30,400 250,000 250,000 36,909 35,847 4.29 54.29
December 31, 1997....... 34,200 250,000 250,000 47,133 46,361 6.93 44.14
December 31, 1998....... 38,000 250,000 250,000 57,124 56,641 8.08 36.77
</TABLE>
A-60
<PAGE>
Option 2 Death Benefit
Zenith Capital Growth Sub-Account*
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1983....... 3,800 250,000 253,592 3,592 2,494 -70.19% --
December 31, 1984....... 7,600 250,000 256,437 6,437 5,271 -37.06 2,101.48%
December 31, 1985....... 11,400 250,000 264,314 14,314 12,415 6.43 461.61
December 31, 1986....... 15,200 250,000 280,559 30,559 28,722 36.60 224.67
December 31, 1987....... 19,000 250,000 298,450 48,450 46,676 39.92 142.00
December 31, 1988....... 22,800 250,000 296,760 46,760 45,143 24.14 98.81
December 31, 1989....... 26,600 250,000 313,521 63,521 62,193 25.14 76.13
December 31, 1990....... 30,400 250,000 313,202 63,202 62,164 18.19 60.03
December 31, 1991....... 34,200 250,000 349,692 99,692 98,944 23.51 51.48
December 31, 1992....... 38,000 250,000 346,015 96,015 95,557 18.18 42.90
December 31, 1993....... 41,800 250,000 362,441 112,441 112,272 17.48 37.39
December 31, 1994....... 45,600 250,000 355,455 105,455 105,455 13.56 32.11
December 31, 1995....... 49,400 250,000 398,899 148,899 148,899 16.16 29.74
December 31, 1996....... 53,200 250,000 431,552 181,552 181,552 16.49 27.37
December 31, 1997....... 57,000 250,000 475,174 225,174 225,174 17.00 25.61
December 31, 1998....... 60,800 250,000 552,714 302,714 302,714 18.33 24.73
Zenith Bond Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1983....... 3,800 250,000 253,385 3,385 2,286 -76.78% --
December 31, 1984....... 7,600 250,000 256,942 6,942 5,775 -28.88 2,104.80%
December 31, 1985....... 11,400 250,000 261,310 11,310 9,411 -13.72 458.63
December 31, 1986....... 15,200 250,000 265,874 15,874 14,037 -4.28 218.77
December 31, 1987....... 19,000 250,000 269,030 19,030 17,256 -4.09 135.29
December 31, 1988....... 22,800 250,000 273,390 23,390 21,773 -1.62 95.16
December 31, 1989....... 26,600 250,000 278,982 28,982 27,655 1.16 72.18
December 31, 1990....... 30,400 250,000 284,054 34,054 33,016 2.14 57.38
December 31, 1991....... 34,200 250,000 292,888 42,888 42,140 4.75 47.45
December 31, 1992....... 38,000 250,000 298,800 48,800 48,341 4.89 40.04
December 31, 1993....... 41,800 250,000 307,275 57,275 57,106 5.70 34.57
December 31, 1994....... 45,600 250,000 307,530 57,530 57,530 3.90 29.91
December 31, 1995....... 49,400 250,000 322,277 72,277 72,277 5.81 26.81
December 31, 1996....... 53,200 250,000 327,983 77,983 77,983 5.40 23.94
December 31, 1997....... 57,000 250,000 338,699 88,699 88,699 5.78 21.72
December 31, 1998....... 60,800 250,000 348,790 98,790 98,790 5.91 19.84
Zenith Money Market Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1983....... 3,800 250,000 253,392 3,392 2,293 -76.57% --
December 31, 1984....... 7,600 250,000 256,730 6,730 5,563 -32.31 2,103.40%
December 31, 1985....... 11,400 250,000 260,261 10,261 8,362 -21.70 457.59
December 31, 1986....... 15,200 250,000 263,843 13,843 12,006 -12.51 217.94
December 31, 1987....... 19,000 250,000 267,572 17,572 15,798 -7.82 134.95
December 31, 1988....... 22,800 250,000 271,691 21,691 20,074 -4.47 94.88
December 31, 1989....... 26,600 250,000 276,412 26,412 25,085 -1.76 71.87
December 31, 1990....... 30,400 250,000 281,215 31,215 30,177 -.19 57.11
December 31, 1991....... 34,200 250,000 285,725 35,725 34,977 .52 46.89
December 31, 1992....... 38,000 250,000 289,571 39,571 39,113 .59 39.43
December 31, 1993....... 41,800 250,000 293,207 43,207 43,038 .54 33.77
December 31, 1994....... 45,600 250,000 297,391 47,391 47,391 .66 29.40
December 31, 1995....... 49,400 250,000 302,526 52,526 52,526 .96 25.95
December 31, 1996....... 53,200 250,000 307,620 57,620 57,620 1.16 23.13
December 31, 1997....... 57,000 250,000 313,036 63,036 63,036 1.36 20.82
December 31, 1998....... 60,800 250,000 318,573 68,573 68,573 1.51 18.87
</TABLE>
A-61
<PAGE>
Zenith Stock Index Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1987....... 3,800 250,000 252,721 2,721 1,623 -72.00% --
December 31, 1988....... 7,600 250,000 256,283 6,283 5,132 -29.46 1,088.88%
December 31, 1989....... 11,400 250,000 261,845 11,845 9,962 -7.89 346.08
December 31, 1990....... 15,200 250,000 264,008 14,008 12,187 -9.97 183.40
December 31, 1991....... 19,000 250,000 271,322 21,322 19,563 1.10 120.05
December 31, 1992....... 22,800 250,000 275,761 25,761 24,217 1.90 86.79
December 31, 1993....... 26,600 250,000 281,081 31,081 29,826 3.12 66.96
December 31, 1994....... 30,400 250,000 284,071 34,071 33,106 2.04 53.68
December 31, 1995....... 34,200 250,000 300,087 50,087 49,412 7.77 45.30
December 31, 1996....... 38,000 250,000 313,570 63,570 63,184 9.60 38.93
December 31, 1997....... 41,800 250,000 337,010 87,010 86,913 12.43 34.53
December 31, 1998....... 45,600 250,000 363,474 113,474 113,474 14.05 31.13
Zenith Managed Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1987....... 3,800 250,000 253,085 3,085 1,987 -62.08% --
December 31, 1988....... 7,600 250,000 256,457 6,457 5,306 -27.26 1,089.39%
December 31, 1989....... 11,400 250,000 261,086 11,086 9,202 -12.35 345.54
December 31, 1990....... 15,200 250,000 264,382 14,382 12,561 -8.63 183.52
December 31, 1991....... 19,000 250,000 270,343 20,343 18,585 -.83 119.85
December 31, 1992....... 22,800 250,000 274,646 24,646 23,101 .41 86.63
December 31, 1993....... 26,600 250,000 280,041 30,041 28,786 2.15 66.84
December 31, 1994....... 30,400 250,000 282,341 32,341 31,376 .76 53.52
December 31, 1995....... 34,200 250,000 295,706 45,706 45,030 5.83 44.99
December 31, 1996....... 38,000 250,000 304,983 54,983 54,597 6.89 38.41
December 31, 1997....... 41,800 250,000 322,380 72,380 72,283 9.37 33.80
December 31, 1998....... 45,600 250,000 338,852 88,852 88,852 10.39 30.10
Zenith Growth and Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1993....... 3,800 250,000 253,511 3,511 2,412 -49.18% --
December 31, 1994....... 7,600 250,000 256,417 6,417 5,271 -27.65 1,084.22%
December 31, 1995....... 11,400 250,000 262,383 12,383 10,505 -4.82 345.70
December 31, 1996....... 15,200 250,000 267,737 17,737 15,921 2.14 184.39
December 31, 1997....... 19,000 250,000 277,143 27,143 25,390 11.01 121.12
December 31, 1998....... 22,800 250,000 286,570 36,570 35,049 13.67 88.27
Zenith Midcap Value Sub-Account**
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1993....... 3,800 250,000 253,528 3,528 2,430 -48.64% --
December 31, 1994....... 7,600 250,000 256,482 6,482 5,336 -26.82 1,084.41%
December 31, 1995....... 11,400 250,000 262,068 12,068 10,189 -6.58 345.48
December 31, 1996....... 15,200 250,000 267,169 17,169 15,353 .46 184.20
December 31, 1997....... 19,000 250,000 273,443 23,443 21,690 4.99 120.36
December 31, 1998....... 22,800 250,000 274,245 24,245 22,725 -0.10 86.51
</TABLE>
A-62
<PAGE>
Zenith Small Cap Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1994....... 3,800 250,000 252,963 2,963 1,865 -65.67% --
December 31, 1995....... 7,600 250,000 257,383 7,383 6,232 -15.93 1,097.19%
December 31, 1996....... 11,400 250,000 262,954 12,954 11,070 -1.75 347.62
December 31, 1997....... 15,200 250,000 269,747 19,747 17,926 7.74 185.57
December 31, 1998....... 19,000 250,000 271,730 21,730 19,972 1.88 120.25
Zenith Balanced Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1994....... 3,800 250,000 253,394 3,394 2,296 -95.10% --
December 31, 1995....... 7,600 250,000 257,224 7,224 6,047 -30.78 3,516.26%
December 31, 1996....... 11,400 250,000 261,426 11,426 9,516 -14.98 553.69
December 31, 1997....... 15,200 250,000 266,156 16,156 14,309 -3.61 243.99
December 31, 1998....... 19,000 250,000 270,536 20,536 18,751 -.61 146.26
Zenith International Magnum Equity Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1994....... 3,800 250,000 253,478 3,478 2,380 -93.92% --
December 31, 1995....... 7,600 250,000 256,778 6,778 5,601 -39.63 3,510.76%
December 31, 1996....... 11,400 250,000 260,184 10,184 8,275 -25.92 552.14
December 31, 1997....... 15,200 250,000 262,852 12,852 11,005 -18.96 242.45
December 31, 1998....... 19,000 250,000 266,670 16,670 14,886 -11.23 145.26
Zenith Venture Value Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1994....... 3,800 250,000 253,288 3,288 2,190 -96.30% --
December 31, 1995....... 7,600 250,000 257,541 7,541 6,364 -24.49 3,520.17%
December 31, 1996....... 11,400 250,000 262,497 12,497 10,587 -6.25 555.03
December 31, 1997....... 15,200 250,000 269,531 19,531 17,684 9.19 245.54
December 31, 1998....... 19,000 250,000 275,294 25,294 23,510 9.88 147.48
Zenith Equity Growth Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1994....... 3,800 250,000 253,209 3,209 2,110 -97.04% --
December 31, 1995....... 7,600 250,000 257,544 7,544 6,367 -24.42 3,520.21%
December 31, 1996....... 11,400 250,000 261,506 11,506 9,597 -14.30 553.80
December 31, 1997....... 15,200 250,000 267,280 17,280 15,433 .91 244.51
December 31, 1998....... 19,000 250,000 278,755 28,755 26,971 16.32 148.35
</TABLE>
A-63
<PAGE>
Equity-Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1986....... 3,800 250,000 253,410 3,410 2,312 -88.75% --
December 31, 1987....... 7,600 250,000 255,705 5,705 4,528 -56.22 2,904.05%
December 31, 1988....... 11,400 250,000 259,811 9,811 7,902 -27.93 516.76
December 31, 1989....... 15,200 250,000 264,376 14,376 12,529 -11.02 234.29
December 31, 1990....... 19,000 250,000 265,121 15,121 13,336 -15.81 141.20
December 31, 1991....... 22,800 250,000 272,768 22,768 21,103 -2.84 98.75
December 31, 1992....... 26,600 250,000 279,557 29,557 28,181 1.79 74.52
December 31, 1993....... 30,400 250,000 287,476 37,476 36,390 4.78 59.22
December 31, 1994....... 34,200 250,000 292,513 42,513 41,716 4.64 48.50
December 31, 1995....... 38,000 250,000 310,228 60,228 59,721 9.29 41.58
December 31, 1996....... 41,800 250,000 320,873 70,873 70,656 9.67 35.94
December 31, 1997....... 45,600 250,000 342,785 92,785 92,785 11.78 32.07
December 31, 1998....... 49,400 250,000 356,169 106,169 106,169 11.58 28.60
Overseas Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1987....... 3,800 250,000 252,710 2,710 1,612 -60.50% --
December 31, 1988....... 7,600 250,000 256,327 6,327 5,197 -23.94 742.67%
December 31, 1989....... 11,400 250,000 261,346 11,346 9,484 -9.27 286.02
December 31, 1990....... 15,200 250,000 263,999 13,999 12,199 -8.88 162.22
December 31, 1991....... 19,000 250,000 268,126 18,126 16,388 -5.02 109.08
December 31, 1992....... 22,800 250,000 268,521 18,521 17,073 -8.40 79.82
December 31, 1993....... 26,600 250,000 279,084 29,084 27,925 1.24 62.90
December 31, 1994....... 30,400 250,000 281,935 31,935 31,066 .49 50.85
December 31, 1995....... 34,200 250,000 288,372 38,372 37,793 2.02 42.52
December 31, 1996....... 38,000 250,000 295,932 45,932 45,643 3.35 36.39
December 31, 1997....... 41,800 250,000 304,011 54,011 54,011 4.27 31.69
December 31, 1998....... 45,600 250,000 313,478 63,478 63,478 5.05 28.04
High Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1985....... 3,800 250,000 253,557 3,557 2,458 -78.63% --
December 31, 1986....... 7,600 250,000 257,190 7,190 6,018 -26.95 2,499.11%
December 31, 1987....... 11,400 250,000 260,143 10,143 8,239 -23.85 488.48
December 31, 1988....... 15,200 250,000 264,190 14,190 12,348 -11.46 226.63
December 31, 1989....... 19,000 250,000 266,240 16,240 14,461 -11.89 138.29
December 31, 1990....... 22,800 250,000 268,587 18,587 16,945 -10.72 96.34
December 31, 1991....... 26,600 250,000 277,838 27,838 26,486 -.13 73.26
December 31, 1992....... 30,400 250,000 286,814 36,814 35,752 4.26 58.46
December 31, 1993....... 34,200 250,000 296,897 46,897 46,125 6.87 48.35
December 31, 1994....... 38,000 250,000 298,576 48,576 48,094 4.85 40.46
December 31, 1995....... 41,800 250,000 311,030 61,030 60,837 6.91 35.12
December 31, 1996....... 45,600 250,000 321,711 71,711 71,711 7.56 30.86
December 31, 1997....... 49,400 250,000 336,527 86,527 86,527 8.53 27.63
December 31, 1998....... 53,200 250,000 335,165 85,165 85,165 6.66 24.39
</TABLE>
A-64
<PAGE>
Asset Manager Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 3,800 $250,000 $253,525 $ 3,525 $ 2,426 -- --
December 31, 1989....... 3,800 250,000 253,383 3,383 2,285 -79.81% --
December 31, 1990....... 7,600 250,000 256,656 6,656 5,484 -34.74 2,269.84%
December 31, 1991....... 11,400 250,000 261,156 11,156 9,252 -15.24 472.30
December 31, 1992....... 15,200 250,000 265,389 15,389 13,547 -6.27 222.43
December 31, 1993....... 19,000 250,000 271,570 21,570 19,791 1.76 137.57
December 31, 1994....... 22,800 250,000 272,761 22,761 21,120 -2.72 95.96
December 31, 1995....... 26,600 250,000 279,497 29,497 28,145 1.70 72.80
December 31, 1996....... 30,400 250,000 286,536 36,536 35,474 4.02 57.99
December 31, 1997....... 34,200 250,000 296,568 46,568 45,796 6.65 48.00
December 31, 1998....... 38,000 250,000 306,327 56,327 55,844 7.80 40.72
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series' investment advisory fee of .50% of average daily net assets
for the period through December 31, 1987 and its current advisory fee
schedule thereafter.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets for the period through April 30, 1998 and .75% thereafter.
Male Non-Smoker Preferred Risk Age 40
$500,000 Face Amount
Option 1 Death Benefit
Zenith Capital Growth Sub-Account*
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1983....... 7,600 500,000 500,000 7,380 5,184 -66.70% --
December 31, 1984....... 15,200 500,000 500,000 13,482 11,149 -32.13 2,058.98%
December 31, 1985....... 22,800 500,000 500,000 30,134 26,336 10.99 447.23
December 31, 1986....... 30,400 500,000 500,000 64,593 60,920 40.23 212.13
December 31, 1987....... 38,000 500,000 500,000 102,726 99,178 42.76 130.64
December 31, 1988....... 45,600 500,000 500,000 99,370 96,136 26.40 91.23
December 31, 1989....... 53,200 500,000 500,000 135,379 132,725 27.07 68.52
December 31, 1990....... 60,800 500,000 500,000 135,020 132,945 19.88 53.94
December 31, 1991....... 68,400 500,000 500,000 213,508 212,012 25.01 43.89
December 31, 1992....... 76,000 500,000 500,000 206,107 205,190 19.54 36.58
December 31, 1993....... 83,600 500,000 500,000 241,943 241,605 18.73 31.06
December 31, 1994....... 91,200 500,000 500,000 227,431 227,431 14.73 26.76
December 31, 1995....... 98,800 500,000 550,159 321,731 321,731 17.24 24.64
December 31, 1996....... 106,400 500,000 644,000 392,683 392,683 17.48 23.71
December 31, 1997....... 114,000 500,000 765,145 487,354 487,354 17.92 23.12
December 31, 1998....... 121,600 500,000 983,201 655,467 655,467 19.18 23.49
</TABLE>
A-65
<PAGE>
Zenith Bond Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1983....... 7,600 500,000 500,000 6,962 4,766 -73.84% --
December 31, 1984....... 15,200 500,000 500,000 14,519 12,185 -23.78 2,058.98%
December 31, 1985....... 22,800 500,000 500,000 23,787 19,989 -9.53 447.23
December 31, 1986....... 30,400 500,000 500,000 33,527 29,854 -.98 212.13
December 31, 1987....... 38,000 500,000 500,000 40,335 36,787 -1.38 130.64
December 31, 1988....... 45,600 500,000 500,000 49,727 46,493 .68 91.23
December 31, 1989....... 53,200 500,000 500,000 61,810 59,156 3.16 68.52
December 31, 1990....... 60,800 500,000 500,000 72,838 70,763 3.92 53.94
December 31, 1991....... 68,400 500,000 500,000 91,991 90,495 6.34 43.89
December 31, 1992....... 76,000 500,000 500,000 104,976 104,059 6.35 36.58
December 31, 1993....... 83,600 500,000 500,000 123,546 123,208 7.06 31.06
December 31, 1994....... 91,200 500,000 500,000 124,386 124,386 5.18 26.76
December 31, 1995....... 98,800 500,000 500,000 156,508 156,508 6.98 23.33
December 31, 1996....... 106,400 500,000 500,000 168,977 168,977 6.49 20.53
December 31, 1997....... 114,000 500,000 500,000 192,356 192,356 6.80 18.22
December 31, 1998....... 121,600 500,000 500,000 214,530 214,530 6.87 16.27
</TABLE>
Zenith Money Market Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1983....... 7,600 500,000 500,000 6,977 4,781 -73.60% --
December 31, 1984....... 15,200 500,000 500,000 14,078 11,744 -27.32 2,058.98%
December 31, 1985....... 22,800 500,000 500,000 21,583 17,785 -17.59 447.23
December 31, 1986....... 30,400 500,000 500,000 29,243 25,570 -9.23 212.13
December 31, 1987....... 38,000 500,000 500,000 37,261 33,713 -5.08 130.64
December 31, 1988....... 45,600 500,000 500,000 46,144 42,910 -2.14 91.23
December 31, 1989....... 53,200 500,000 500,000 56,363 53,708 .28 68.52
December 31, 1990....... 60,800 500,000 500,000 66,809 64,734 1.62 53.94
December 31, 1991....... 68,400 500,000 500,000 76,680 75,184 2.16 43.89
December 31, 1992....... 76,000 500,000 500,000 85,182 84,265 2.11 36.58
December 31, 1993....... 83,600 500,000 500,000 93,267 92,929 1.96 31.06
December 31, 1994....... 91,200 500,000 500,000 102,545 102,545 1.98 26.76
December 31, 1995....... 98,800 500,000 500,000 113,791 113,791 2.20 23.33
December 31, 1996....... 106,400 500,000 500,000 124,845 124,845 2.30 20.53
December 31, 1997....... 114,000 500,000 500,000 136,597 136,597 2.42 18.22
December 31, 1998....... 121,600 500,000 500,000 148,705 148,705 2.51 16.27
</TABLE>
A-66
<PAGE>
Zenith Stock Index Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1987....... 7,600 500,000 500,000 5,684 3,488 -68.81% --
December 31, 1988....... 15,200 500,000 500,000 13,243 10,941 -25.20 1,070.47%
December 31, 1989....... 22,800 500,000 500,000 25,039 21,272 -4.11 337.59
December 31, 1990....... 30,400 500,000 500,000 29,710 26,068 -6.98 178.58
December 31, 1991....... 38,000 500,000 500,000 45,366 41,849 3.63 115.51
December 31, 1992....... 45,600 500,000 500,000 54,955 51,866 4.07 82.89
December 31, 1993....... 53,200 500,000 500,000 66,479 63,969 5.02 63.34
December 31, 1994....... 60,800 500,000 500,000 73,059 71,128 3.75 50.46
December 31, 1995....... 68,400 500,000 500,000 107,670 106,319 9.29 41.41
December 31, 1996....... 76,000 500,000 500,000 136,992 136,220 10.99 34.74
December 31, 1997....... 83,600 500,000 500,000 187,918 187,725 13.70 29.65
December 31, 1998....... 91,200 500,000 500,000 245,616 245,616 15.22 25.65
Zenith Managed Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1987....... 7,600 500,000 500,000 6,442 4,246 -58.14% --
December 31, 1988....... 15,200 500,000 500,000 13,601 11,299 -22.98 1,070.47%
December 31, 1989....... 22,800 500,000 500,000 23,425 19,659 -8.65 337.59
December 31, 1990....... 30,400 500,000 500,000 30,489 26,847 -5.66 178.58
December 31, 1991....... 38,000 500,000 500,000 43,261 39,745 1.69 115.51
December 31, 1992....... 45,600 500,000 500,000 52,549 49,460 2.57 82.89
December 31, 1993....... 53,200 500,000 500,000 64,230 61,720 4.04 63.34
December 31, 1994....... 60,800 500,000 500,000 69,328 67,397 2.46 50.46
December 31, 1995....... 68,400 500,000 500,000 98,230 96,878 7.36 41.41
December 31, 1996....... 76,000 500,000 500,000 118,469 117,696 8.28 34.74
December 31, 1997....... 83,600 500,000 500,000 156,311 156,118 10.65 29.65
December 31, 1998....... 91,200 500,000 500,000 192,312 192,312 11.57 25.65
</TABLE>
Zenith Growth and Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1993....... 7,600 500,000 500,000 7,352 5,156 -43.90% --
December 31, 1994....... 15,200 500,000 500,000 13,535 11,243 -23.27 1,065.53%
December 31, 1995....... 22,800 500,000 500,000 26,179 22,423 -.99 336.86
December 31, 1996....... 30,400 500,000 500,000 37,619 33,988 5.19 178.34
December 31, 1997....... 38,000 500,000 500,000 57,685 54,178 13.52 115.39
December 31, 1998....... 45,600 500,000 500,000 77,934 74,893 15.79 82.83
Zenith Midcap Value Sub-Account**
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1993....... 7,600 500,000 500,000 7,387 5,191 -43.33% --
December 31, 1994....... 15,200 500,000 500,000 13,668 11,376 -22.45 1,065.53%
December 31, 1995....... 22,800 500,000 500,000 25,501 21,745 -2.81 336.86
December 31, 1996....... 30,400 500,000 500,000 36,403 32,772 3.49 178.34
December 31, 1997....... 38,000 500,000 500,000 49,809 46,303 7.47 115.39
December 31, 1998....... 45,600 500,000 500,000 51,719 48,678 2.06 82.83
</TABLE>
A-67
<PAGE>
Zenith Small Cap Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 500,000 6,197 4,001 -61.86% --
December 31, 1995....... 15,200 500,000 500,000 15,555 13,253 -11.23 1,075.45%
December 31, 1996....... 22,800 500,000 500,000 27,389 23,622 2.14 338.33
December 31, 1997....... 30,400 500,000 500,000 41,836 38,194 10.78 178.83
December 31, 1998....... 38,000 500,000 500,000 46,225 42,708 4.41 115.62
Zenith Balanced Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 500,000 6,919 4,723 -94.20% --
December 31, 1995....... 15,200 500,000 500,000 15,040 12,686 -24.90 3,427.01%
December 31, 1996....... 22,800 500,000 500,000 23,948 20,129 -10.44 539.22
December 31, 1997....... 30,400 500,000 500,000 34,025 30,331 -.14 236.33
December 31, 1998....... 38,000 500,000 500,000 43,410 39,841 2.18 140.81
Zenith International Magnum Equity Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 500,000 7,089 4,893 -92.83% --
December 31, 1995....... 15,200 500,000 500,000 14,109 11,755 -34.15 3,427.01%
December 31, 1996....... 22,800 500,000 500,000 21,337 17,518 -21.53 539.22
December 31, 1997....... 30,400 500,000 500,000 27,056 23,362 -15.51 236.33
December 31, 1998....... 38,000 500,000 500,000 35,226 31,657 -8.41 140.81
</TABLE>
Zenith Venture Value Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 500,000 6,706 4,510 -95.60% --
December 31, 1995....... 15,200 500,000 500,000 15,705 13,351 -18.30 3,427.01%
December 31, 1996....... 22,800 500,000 500,000 26,197 22,378 -1.60 539.22
December 31, 1997....... 30,400 500,000 500,000 41,133 37,439 12.70 236.33
December 31, 1998....... 38,000 500,000 500,000 53,455 49,886 12.64 140.81
Zenith Equity Growth Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 500,000 6,544 4,348 -96.46% --
December 31, 1995....... 15,200 500,000 500,000 15,721 13,367 -18.14 3,427.01%
December 31, 1996....... 22,800 500,000 500,000 24,123 20,304 -9.73 539.22
December 31, 1997....... 30,400 500,000 500,000 36,400 32,706 4.41 236.33
December 31, 1998....... 38,000 500,000 500,000 60,794 57,225 19.11 140.81
</TABLE>
A-68
<PAGE>
Equity-Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1986....... 7,600 500,000 500,000 6,950 4,754 -87.30% --
December 31, 1987....... 15,200 500,000 500,000 11,878 9,524 -51.96 2,847.86%
December 31, 1988....... 22,800 500,000 500,000 20,581 16,763 -23.69 505.26
December 31, 1989....... 30,400 500,000 500,000 30,319 26,625 -7.60 227.75
December 31, 1990....... 38,000 500,000 500,000 31,969 28,400 -13.01 137.27
December 31, 1991....... 45,600 500,000 500,000 48,322 44,992 -.49 94.76
December 31, 1992....... 53,200 500,000 500,000 62,919 60,168 3.80 70.66
December 31, 1993....... 60,800 500,000 500,000 80,034 77,862 6.56 55.37
December 31, 1994....... 68,400 500,000 500,000 91,049 89,456 6.25 44.89
December 31, 1995....... 76,000 500,000 500,000 129,386 128,372 10.73 37.32
December 31, 1996....... 83,600 500,000 500,000 152,651 152,217 11.00 31.62
December 31, 1997....... 91,200 500,000 500,000 200,371 200,371 12.99 27.20
December 31, 1998....... 98,800 500,000 500,000 229,621 229,621 12.71 23.68
Overseas Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1987....... 7,600 500,000 500,000 5,790 3,594 -55.56% --
December 31, 1988....... 15,200 500,000 500,000 13,452 11,192 -19.69 731.16%
December 31, 1989....... 22,800 500,000 500,000 24,140 20,415 -5.64 279.55
December 31, 1990....... 30,400 500,000 500,000 29,852 26,252 -5.97 158.04
December 31, 1991....... 38,000 500,000 500,000 38,734 35,258 -2.55 105.56
December 31, 1992....... 45,600 500,000 500,000 39,700 36,804 -6.23 77.19
December 31, 1993....... 53,200 500,000 500,000 62,423 60,107 3.11 59.70
December 31, 1994....... 60,800 500,000 500,000 68,708 66,971 2.18 47.97
December 31, 1995....... 68,400 500,000 500,000 82,756 81,597 3.56 39.61
December 31, 1996....... 76,000 500,000 500,000 99,289 98,709 4.77 33.39
December 31, 1997....... 83,600 500,000 500,000 117,002 117,002 5.58 28.61
December 31, 1998....... 91,200 500,000 500,000 137,733 137,733 6.27 24.82
</TABLE>
High Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 7,600 $500,000 $500,000 $ 7,121 $ 4,924 -- --
December 31, 1985....... 7,600 500,000 500,000 7,282 5,086 -75.91% --
December 31, 1986....... 15,200 500,000 500,000 14,995 12,651 -21.66 2,440.56%
December 31, 1987....... 22,800 500,000 500,000 21,280 17,472 -19.76 477.39
December 31, 1988....... 30,400 500,000 500,000 29,916 26,232 -8.17 220.41
December 31, 1989....... 38,000 500,000 500,000 34,376 30,818 -9.14 134.18
December 31, 1990....... 45,600 500,000 500,000 39,489 36,207 -8.32 93.12
December 31, 1991....... 53,200 500,000 500,000 59,362 56,659 1.92 69.67
December 31, 1992....... 60,800 500,000 500,000 78,748 76,624 6.05 54.71
December 31, 1993....... 68,400 500,000 500,000 100,589 99,045 8.47 44.43
December 31, 1994....... 76,000 500,000 500,000 104,474 103,509 6.33 36.98
December 31, 1995....... 83,600 500,000 500,000 131,622 131,236 8.27 31.37
December 31, 1996....... 91,200 500,000 500,000 155,034 155,034 8.81 27.00
December 31, 1997....... 98,800 500,000 500,000 187,405 187,405 9.69 23.52
December 31, 1998....... 106,400 500,000 500,000 184,580 184,580 7.75 20.69
</TABLE>
A-69
<PAGE>
Asset Manager Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 7,600 $500,000 $ 500,000 $ 7,121 $ 4,924 -- --
December 31, 1989....... 7,600 500,000 500,000 6,929 4,733 -77.47% --
December 31, 1990....... 15,200 500,000 500,000 13,891 11,548 -29.90 2,221.58%
December 31, 1991....... 22,800 500,000 500,000 23,430 19,622 -11.08 460.64
December 31, 1992....... 30,400 500,000 500,000 32,462 28,778 -3.00 215.86
December 31, 1993....... 38,000 500,000 500,000 45,681 42,122 4.46 132.24
December 31, 1994....... 45,600 500,000 500,000 48,352 45,070 -.41 92.09
December 31, 1995....... 53,200 500,000 500,000 62,874 60,171 3.70 69.04
December 31, 1996....... 60,800 500,000 500,000 78,098 75,974 5.78 54.29
December 31, 1997....... 68,400 500,000 500,000 99,834 98,289 8.24 44.14
December 31, 1998....... 76,000 500,000 500,000 121,058 120,092 9.23 36.77
Option 2 Death Benefit
Zenith Capital Growth Sub-Account*
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 7,600 $500,000 $ 507,120 $ 7,120 $ 4,924 -- --
December 31, 1983....... 7,600 500,000 507,376 7,376 5,180 -66.78% --
December 31, 1984....... 15,200 500,000 513,465 13,465 11,132 -32.27 2,103.42%
December 31, 1985....... 22,800 500,000 530,070 30,070 26,272 10.80 462.32
December 31, 1986....... 30,400 500,000 564,378 64,378 60,705 40.01 225.31
December 31, 1987....... 38,000 500,000 602,237 102,237 98,689 42.53 142.58
December 31, 1988....... 45,600 500,000 598,767 98,767 95,533 26.17 99.21
December 31, 1989....... 53,200 500,000 634,358 134,358 131,703 26.84 76.53
December 31, 1990....... 60,800 500,000 633,806 133,806 131,731 19.64 60.35
December 31, 1991....... 68,400 500,000 711,253 211,253 209,757 24.78 51.87
December 31, 1992....... 76,000 500,000 703,602 203,602 202,684 19.30 43.22
December 31, 1993....... 83,600 500,000 738,615 238,615 238,277 18.49 37.72
December 31, 1994....... 91,200 500,000 723,939 223,939 223,939 14.49 32.39
December 31, 1995....... 98,800 500,000 816,256 316,256 316,256 17.00 30.06
December 31, 1996....... 106,400 500,000 885,416 385,416 385,416 17.24 27.69
December 31, 1997....... 114,000 500,000 977,819 477,819 477,819 17.69 25.94
December 31, 1998....... 121,600 500,000 1,142,132 642,132 642,132 18.96 25.07
Zenith Bond Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- ---------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 7,600 $500,000 $ 507,120 $ 7,120 $ 4,924 -- --
December 31, 1983....... 7,600 500,000 506,958 6,958 4,762 -73.91% --
December 31, 1984....... 15,200 500,000 514,500 14,500 12,167 -23.93 2,106.82%
December 31, 1985....... 22,800 500,000 523,738 23,738 19,940 -9.70 459.19
December 31, 1986....... 30,400 500,000 533,426 33,426 29,753 -1.16 219.12
December 31, 1987....... 38,000 500,000 540,173 40,173 36,625 -1.57 135.55
December 31, 1988....... 45,600 500,000 549,476 49,476 46,242 .49 95.38
December 31, 1989....... 53,200 500,000 561,427 61,427 58,773 2.97 72.39
December 31, 1990....... 60,800 500,000 572,301 72,301 70,225 3.72 57.58
December 31, 1991....... 68,400 500,000 591,193 91,193 89,697 6.14 47.66
December 31, 1992....... 76,000 500,000 603,917 103,917 103,000 6.15 40.24
December 31, 1993....... 83,600 500,000 622,126 122,126 121,788 6.85 34.78
December 31, 1994....... 91,200 500,000 622,788 122,788 122,788 4.97 30.10
December 31, 1995....... 98,800 500,000 654,254 154,254 154,254 6.77 27.02
December 31, 1996....... 106,400 500,000 666,237 166,237 166,237 6.27 24.13
December 31, 1997....... 114,000 500,000 688,832 188,832 188,832 6.56 21.92
December 31, 1998....... 121,600 500,000 710,086 210,086 210,086 6.63 20.03
</TABLE>
A-70
<PAGE>
Zenith Money Market Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
August 26, 1983......... $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1983....... 7,600 500,000 506,973 6,973 4,777 -73.67% --
December 31, 1984....... 15,200 500,000 514,060 14,060 11,726 -27.47 2,105.38%
December 31, 1985....... 22,800 500,000 521,540 21,540 17,741 -17.76 458.09
December 31, 1986....... 30,400 500,000 529,158 29,158 25,485 -9.40 218.24
December 31, 1987....... 38,000 500,000 537,116 37,116 33,568 -5.26 135.18
December 31, 1988....... 45,600 500,000 545,919 45,919 42,685 -2.32 95.09
December 31, 1989....... 53,200 500,000 556,025 56,025 53,371 .10 72.06
December 31, 1990....... 60,800 500,000 566,331 66,331 64,256 1.43 57.29
December 31, 1991....... 68,400 500,000 576,036 76,036 74,540 1.97 47.07
December 31, 1992....... 76,000 500,000 584,356 84,356 83,439 1.91 39.60
December 31, 1993....... 83,600 500,000 592,246 92,246 91,908 1.76 33.94
December 31, 1994....... 91,200 500,000 601,295 101,295 101,295 1.78 29.56
December 31, 1995....... 98,800 500,000 612,243 112,243 112,243 1.99 26.11
December 31, 1996....... 106,400 500,000 622,937 122,937 122,937 2.08 23.29
December 31, 1997....... 114,000 500,000 634,244 134,244 134,244 2.19 20.97
December 31, 1998....... 121,600 500,000 645,813 145,813 145,813 2.27 19.02
Zenith Stock Index Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1987....... 7,600 500,000 505,679 5,679 3,483 -68.88% --
December 31, 1988....... 15,200 500,000 513,222 13,222 10,920 -25.33 1,089.84%
December 31, 1989....... 22,800 500,000 524,979 24,979 21,212 -4.27 346.53
December 31, 1990....... 30,400 500,000 529,611 29,611 25,969 -7.15 183.67
December 31, 1991....... 38,000 500,000 545,166 45,166 41,649 3.45 120.31
December 31, 1992....... 45,600 500,000 554,653 54,653 51,564 3.89 87.02
December 31, 1993....... 53,200 500,000 566,034 66,034 63,524 4.83 67.17
December 31, 1994....... 60,800 500,000 572,481 72,481 70,551 3.55 53.87
December 31, 1995....... 68,400 500,000 606,674 106,674 105,323 9.10 45.53
December 31, 1996....... 76,000 500,000 635,522 135,522 134,749 10.79 39.17
December 31, 1997....... 83,600 500,000 685,622 185,622 185,429 13.50 34.81
December 31, 1998....... 91,200 500,000 742,210 242,210 242,210 15.01 31.43
</TABLE>
Zenith Managed Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1987............. $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1987....... 7,600 500,000 506,436 6,436 4,240 -58.23% --
December 31, 1988....... 15,200 500,000 513,579 13,579 11,277 -23.11 1,090.36%
December 31, 1989....... 22,800 500,000 523,370 23,370 19,603 -8.81 345.96
December 31, 1990....... 30,400 500,000 530,388 30,388 26,746 -5.83 183.80
December 31, 1991....... 38,000 500,000 543,073 43,073 39,557 1.51 120.09
December 31, 1992....... 45,600 500,000 552,264 52,264 49,175 2.38 86.85
December 31, 1993....... 53,200 500,000 563,805 63,805 61,295 3.86 67.05
December 31, 1994....... 60,800 500,000 568,787 68,787 66,856 2.27 53.71
December 31, 1995....... 68,400 500,000 597,334 97,334 95,982 7.16 45.20
December 31, 1996....... 76,000 500,000 617,219 117,219 116,447 8.09 38.63
December 31, 1997....... 83,600 500,000 654,440 154,440 154,247 10.45 34.04
December 31, 1998....... 91,200 500,000 689,708 189,708 189,708 11.37 30.36
</TABLE>
A-71
<PAGE>
Zenith Growth and Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1993....... 7,600 500,000 507,345 7,345 5,148 -44.02% --
December 31, 1994....... 15,200 500,000 513,511 13,511 11,219 -23.42 1,085.20%
December 31, 1995....... 22,800 500,000 526,113 26,113 22,356 -1.17 346.17
December 31, 1996....... 30,400 500,000 537,484 37,484 33,853 5.01 184.73
December 31, 1997....... 38,000 500,000 557,414 57,414 53,907 13.32 121.43
December 31, 1998....... 45,600 500,000 577,469 77,469 74,429 15.59 88.57
Zenith Midcap Value Sub-Account**
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 30, 1993.......... $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1993....... 7,600 500,000 507,380 7,380 5,183 -43.45% --
December 31, 1994....... 15,200 500,000 513,644 13,644 11,352 -22.60 1,085.39%
December 31, 1995....... 22,800 500,000 525,436 25,436 21,680 -2.99 345.93
December 31, 1996....... 30,400 500,000 536,273 36,273 32,641 3.30 184.53
December 31, 1997....... 38,000 500,000 549,578 49,578 46,071 7.28 120.64
December 31, 1998....... 45,600 500,000 551,415 51,415 48,374 1.86 86.72
Zenith Small Cap Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 1994............. $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 506,191 6,191 3,995 -61.94% --
December 31, 1995....... 15,200 500,000 515,530 15,530 13,228 -11.38 1,098.31%
December 31, 1996....... 22,800 500,000 527,321 27,321 23,555 1.97 348.12
December 31, 1997....... 30,400 500,000 541,691 41,691 38,049 10.60 185.94
December 31, 1998....... 38,000 500,000 546,010 46,010 42,493 4.21 120.52
Zenith Balanced Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 506,917 6,917 4,270 -94.21% --
December 31, 1995....... 15,200 500,000 515,024 15,024 12,669 -25.06 3,519.81%
December 31, 1996....... 22,800 500,000 523,904 23,904 20,085 -10.62 554.35
December 31, 1997....... 30,400 500,000 533,931 33,931 30,237 -.32 244.36
December 31, 1998....... 38,000 500,000 543,246 43,246 39,677 1.99 146.54
</TABLE>
Zenith International Magnum Equity Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- ------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 507,087 7,087 4,890 -92.85% --
December 31, 1995....... 15,200 500,000 514,095 14,095 11,740 -34.29 3,514.09%
December 31, 1996....... 22,800 500,000 521,300 21,300 17,481 -21.70 552.72
December 31, 1997....... 30,400 500,000 526,987 26,987 23,293 -15.68 242.75
December 31, 1998....... 38,000 500,000 535,103 35,103 31,534 -8.59 145.49
</TABLE>
A-72
<PAGE>
Zenith Venture Value Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 506,704 6,704 4,507 -95.61% --
December 31, 1995....... 15,200 500,000 515,688 15,688 13,334 -18.47 3,523.91%
December 31, 1996....... 22,800 500,000 526,147 26,147 22,328 -1.79 555.75
December 31, 1997....... 30,400 500,000 541,013 41,013 37,319 12.50 245.99
December 31, 1998....... 38,000 500,000 553,242 53,242 49,673 12.44 147.81
Zenith Equity Growth Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 31, 1994........ $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1994....... 7,600 500,000 506,542 6,542 4,345 -96.47% --
December 31, 1995....... 15,200 500,000 515,703 15,703 13,349 -18.31 3,524.00%
December 31, 1996....... 22,800 500,000 524,077 24,077 20,258 -9.91 554.46
December 31, 1997....... 30,400 500,000 536,297 36,297 32,603 4.22 244.91
December 31, 1998....... 38,000 500,000 560,553 60,553 56,984 18.91 148.73
Equity-Income Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 9, 1986......... $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1986....... 7,600 500,000 506,948 6,948 4,751 -87.33% --
December 31, 1987....... 15,200 500,000 511,865 11,865 9,511 -52.07 2,906.29%
December 31, 1988....... 22,800 500,000 520,545 20,545 16,726 -23.85 517.29
December 31, 1989....... 30,400 500,000 530,237 30,237 26,543 -7.77 234.62
December 31, 1990....... 38,000 500,000 531,858 31,858 28,289 -13.19 141.41
December 31, 1991....... 45,600 500,000 548,105 48,105 44,775 -.67 98.96
December 31, 1992....... 53,200 500,000 562,567 62,567 59,815 3.62 74.73
December 31, 1993....... 60,800 500,000 579,482 79,482 77,310 6.37 59.44
December 31, 1994....... 68,400 500,000 590,301 90,301 88,708 6.05 48.71
December 31, 1995....... 76,000 500,000 628,129 128,129 127,115 10.53 41.83
December 31, 1996....... 83,600 500,000 650,940 150,940 150,505 10.80 36.19
December 31, 1997....... 91,200 500,000 697,812 197,812 197,812 12.79 32.34
December 31, 1998....... 98,800 500,000 726,314 226,314 226,314 12.50 28.87
Overseas Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 28, 1987........ $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1987....... 7,600 500,000 505,782 5,782 3,586 -55.67% --
December 31, 1988....... 15,200 500,000 513,425 13,425 11,164 -19.84 743.37%
December 31, 1989....... 22,800 500,000 524,070 24,070 20,345 -5.81 286.41
December 31, 1990....... 30,400 500,000 529,736 29,736 26,136 -6.14 162.47
December 31, 1991....... 38,000 500,000 538,544 38,544 35,068 -2.73 109.30
December 31, 1992....... 45,600 500,000 539,463 39,463 36,567 -6.42 79.99
December 31, 1993....... 53,200 500,000 561,984 61,984 59,667 2.92 63.10
December 31, 1994....... 60,800 500,000 568,139 68,139 66,402 1.99 51.03
December 31, 1995....... 68,400 500,000 581,963 81,963 80,804 3.37 42.71
December 31, 1996....... 76,000 500,000 598,204 98,204 97,625 4.57 36.58
December 31, 1997....... 83,600 500,000 615,573 115,573 115,573 5.38 31.89
December 31, 1998....... 91,200 500,000 635,852 135,852 135,852 6.06 28.24
</TABLE>
A-73
<PAGE>
High Income Sub-Account
<TABLE>
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 19, 1985...... $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1985....... 7,600 500,000 507,279 7,279 5,082 -75.97% --
December 31, 1986....... 15,200 500,000 514,977 14,977 12,633 -21.82 2,501.52%
December 31, 1987....... 22,800 500,000 521,239 21,239 17,431 -19.93 489.00
December 31, 1988....... 30,400 500,000 529,832 29,832 26,149 -8.35 226.94
December 31, 1989....... 38,000 500,000 534,247 34,247 30,689 -9.32 138.51
December 31, 1990....... 45,600 500,000 539,305 39,305 36,022 -8.50 96.52
December 31, 1991....... 53,200 500,000 559,018 59,018 56,315 1.73 73.46
December 31, 1992....... 60,800 500,000 578,191 78,191 76,067 5.86 58.68
December 31, 1993....... 68,400 500,000 599,741 99,741 98,196 8.28 48.58
December 31, 1994....... 76,000 500,000 603,444 103,444 102,479 6.13 40.66
December 31, 1995....... 83,600 500,000 630,136 130,136 129,750 8.06 35.34
December 31, 1996....... 91,200 500,000 653,060 153,060 153,060 8.61 31.09
December 31, 1997....... 98,800 500,000 684,709 184,709 184,709 9.48 27.87
December 31, 1998....... 106,400 500,000 681,590 181,590 181,590 7.53 24.60
Asset Manager Sub-Account
<CAPTION>
Total Minimum Variable Internal Rate Internal Rate
Premiums Death Death Cash Net Cash of Return on of Return on
Date Paid Benefit Benefit Value Value Net Cash Value Death Benefit
- ---- -------- -------- -------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
September 6, 1989....... $ 7,600 $500,000 $507,120 $ 7,120 $ 4,924 -- --
December 31, 1989....... 7,600 500,000 506,926 6,926 4,730 -77.52% --
December 31, 1990....... 15,200 500,000 513,876 13,876 11,532 -30.03 2,271.89%
December 31, 1991....... 22,800 500,000 523,385 23,385 19,577 -11.24 472.86
December 31, 1992....... 30,400 500,000 532,370 32,370 28,686 -3.18 222.76
December 31, 1993....... 38,000 500,000 545,503 45,503 41,945 4.27 137.85
December 31, 1994....... 45,600 500,000 548,113 48,113 44,831 -.60 96.17
December 31, 1995....... 53,200 500,000 562,493 62,493 59,790 3.51 73.01
December 31, 1996....... 60,800 500,000 577,530 77,530 75,406 5.59 58.20
December 31, 1997....... 68,400 500,000 598,972 98,972 97,427 8.04 48.23
December 31, 1998....... 76,000 500,000 619,842 119,842 118,877 9.03 40.95
</TABLE>
- --------
* Rates of return and Policy values and benefits shown reflect the Capital
Growth Series' investment advisory fee of .50% of average daily net assets
for the period through December 31, 1987 and its current advisory fee
schedule thereafter.
** Rates of return and Policy values and benefits shown reflect the Goldman
Sachs Midcap Value Series' investment advisory fee of .70% of average daily
net assets for the period through April 30, 1998 and .75% thereafter.
A-74
<PAGE>
APPENDIX C
LONG TERM MARKET TRENDS
The information below compares the average annual returns of common stock,
high grade corporate bonds and 30-day U.S. Treasury bills over 20-year and 30-
year holding periods.* The average annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and does
not predict future performance. The information does not reflect Policy
charges.
The data indicates that, historically, the investment performance of common
stocks over long periods has been positive and generally superior to that of
long-term, high grade debt securities. Common stocks have, however, been
subject to more dramatic market adjustments over short periods.
Over the 54 20-year time periods beginning in 1926 and ending in 1998 (i.e.,
1926-1945, 1927-1946, and so on through 1979-1998):
--The average annual return of common stocks was superior to that of high
grade, long-term corporate bonds in 51 of the 54 periods.
--The average annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 54 periods.
--Common stock average annual returns exceeded the average annual rate of
inflation in each of the 54 periods.
Over the 44 30-year periods beginning in 1926 and ending in 1998, the
average annual return of common stocks was superior to that of high grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 44
periods.
From 1926 through 1998 the average annual return for common stocks was
11.2%, compared to 5.8% for high grade, long-term corporate bonds, 3.8% for
U.S. Treasury bills and 3.1% for the Consumer Price Index.
- --------
* Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
----------------
SUMMARY: HISTORIC S&P STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Stock Index with dividends reinvested, over one-year, five-year and
twenty-year periods beginning in 1926 and ending 1998.
The chart does not predict future stock market results. It shows the
historic performance of a broad index of stocks, and not the performance of
any fund or investment.
----------------
Percent of Holding Periods with the Following Returns:
<TABLE>
<CAPTION>
Greater
0- 5.01- 10.01- 15.01- Than
Holding Negative 5.00% 10.00% 15.00% 20.00% 20.00%
Period Return Return Return Return Return Return
- ------- -------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year............................ 27% 4% 11% 7% 11% 40%
5 years........................... 10% 14% 14% 31% 19% 12%
10 years........................... 3% 10% 33% 24% 28% 2%
20 years........................... 0% 6% 31% 54% 9% 0%
</TABLE>
- --------
Used with permission. (C)1999 Ibbotson Associates, Inc. All rights reserved.
[Certain portions of this work were derived from copyrighted works of Roger G.
Ibbotson and Rex Sinquefield.]
A-75
<PAGE>
DOLLAR COST AVERAGING
Dollar cost averaging does not guarantee a profit or protect against a loss.
If an investor follows a program of dollar cost averaging on a long-term
basis, and the stock fund selected performs at least as well as the S&P 500
has historically, it is likely --not guaranteed--that the price at which
shares are surrendered, for whatever reason, will be higher than the average
cost per share.
An investor using dollar cost averaging invests the same amount of money in
the same professionally managed fund at regular intervals over a long period
of time. Under dollar cost averaging, an investor does not invest more when
the price of shares is high and less when the price is low. When the price of
shares is low, the money invested buys more shares. When it is high, the money
invested buys fewer shares. If you have the ability and desire to maintain
this program over a long period of time (for example, 20 years), and the stock
fund chosen follows the historical upward market trends, the price at which
you sell shares should be higher than their average cost. This price could be
lower, however, if the fund you chose does not follow these historical trends.
You should consider your ability to continue on-going dollar cost averaging
purchases so that you can take advantage of periods of low price levels if you
are considering dollar cost averaging.
A-76
<PAGE>
APPENDIX D
USES OF LIFE INSURANCE
These are examples of ways the Policy can be used to address certain
financial objectives.
Family Income Protection
You may purchase life insurance on the lives of family income earners to
provide a death benefit to cover final expenses, and continue current family
income. The amount of insurance you purchase should be an amount which will
provide a death benefit that, when invested outside the policy at a reasonable
interest rate, will generate enough money to replace the individual's income.
Estate Protection
A trust may purchase life insurance on the life of the person whose estate
will incur federal estate taxes upon the person's death. The amount of
insurance purchased should equal the amount of the estimated estate tax
liability. On the insured's death, the trustee makes the death proceeds
available to the estate for the payment of estate tax costs.
Education Funding
You may purchase life insurance on the life of the parent(s) or primary
person funding an education. The amount of insurance you purchase should equal
the total education cost projected at a reasonable inflation rate.
In the event of death, the guaranteed death benefit is available to help pay
the education costs. If the insured lives through the education years, cash
value may be accessed to meet education costs. Loans or surrenders reduce the
Policy's death benefit.
Mortgage Protection
You may purchase life insurance on the life of the person responsible for
making mortgage payments. The amount of insurance you purchase should equal
the mortgage amount. In the event of the insured's death, the guaranteed death
benefit can be used to pay the mortgage balance.
During the insured's lifetime, cash value may be accessed late in the
mortgage term to help make the remaining mortgage payments. Loans or
surrenders reduce the Policy's death benefit.
Key Person Protection
A business may purchase life insurance on the life of a key person in an
amount equal to the key person's value, considering salary, benefits, and
contribution to the business. On the key person's death, the business uses the
death benefit to ease the interruption of business operations and/or to
provide a replacement fund for hiring a new executive.
Business Continuation Protection
You can insure each business owner in an amount equal to the value of each
owner's business interest. In the event of death, the guaranteed death benefit
provides funds for the purchase of the deceased's business interest by the
business, or surviving owners, from the deceased owner's heirs.
Retirement Income
You may purchase life insurance on the life of a family income earner during
his or her working life. If the insured lives to retirement, cash value may be
accessed to provide retirement payments. In the event of the insured's death,
the proceeds may be used to provide retirement income to his or her spouse.
Loans or surrenders reduce the Policy's death benefit.
Because the Policy provides a death benefit and cash value accumulation, you
can use the Policy for various individual and business planning purposes. If
you purchase the Policy for such purposes, you assume certain risks,
particularly if the Policy's cash value, as opposed to its death benefit, will
be the principal Policy feature used for such planning purposes. If the
investment performance of the Sub-Accounts to which cash value is allocated is
poorer than expected, or if you don't pay sufficient premiums or maintain cash
values, the Policy may lapse or may not accumulate sufficient cash value or
net cash value to fund the purpose for which you purchased the Policy. Because
the Policy is designed to provide benefits on a long-term basis, before
purchasing a Policy for a specialized purpose, you should consider whether the
long-term nature of the Policy is consistent with your goals. If you wish to
access your Policy's cash value, through loans, surrenders or withdrawals, you
should consult your tax advisor about possible tax consequences. (See "Tax
Considerations".)
A-77
<PAGE>
APPENDIX E
TAX INFORMATION
The Office of Tax Analysis of the U.S. Department of the Treasury published
a "Report to the Congress on the Taxation of Life Insurance Company Products"
in March 1990. Page 4 of this report is Table 1.1, a "Comparison of Tax
Treatment of Life Insurance Products and Other Retirement Savings Plans".
Because it is a convenient summary of the relevant tax characteristics of
these products and plans, we have reprinted it here, and added footnotes to
reflect exceptions to the general rules.
---------------------
Table 1.1
Comparison of Tax Treatment of Life Insurance Products and
Other Retirement Savings Plans
<TABLE>
<CAPTION>
Cash-Value
Life Non-Qualified Qualified
Insurance Annuities IRA'S Pension
---------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Annual Contribution Limits No No Yes Yes
Income Eligibility Limits No No Yes** No
Borrowing Treated as No* Yes Loans not Yes,
Distributions allowed beyond
$50,000
Income Ordering Rules (Income No* Yes Yes Yes
included in First
Distribution)
Early Withdrawal Penalties No* Yes*** Yes*** Yes***
Minimum Distribution Rules by No No Yes Yes
Age 70 1/2
Maximum Annual Distribution No No Yes Yes
Rules
Anti-discrimination Rules No No No Yes
</TABLE>
- --------
Department of the Treasury March 1990
Office of Tax Analysis
* If the Policy is not a modified endowment contract.
** If amounts paid in to fund the IRA are deductible; once over the income
eligibility limits amounts paid into an IRA are permitted but not
deductible.
*** There are several exceptions to the application of the early withdrawal
penalties for annuities, IRAs and qualified pensions.
This appendix is not tax advice. You should consult with your own tax
advisor for more complete information.
A-78
<PAGE>
APPENDIX F
TAX LAW AND THE DEATH BENEFIT
In order to meet the Internal Revenue Code's definition of life insurance,
the Policies provide that the death benefit will not be less than a percentage
of the Policy's cash value. These percentages are set forth below.
Table I
<TABLE>
<CAPTION>
Age of Age of
Insured at Start of Percentage of Insured at Start of Percentage of
the Policy Year Cash Value* the Policy Year Cash Value*
------------------- ------------- ------------------- -------------
<S> <C> <C> <C>
0 through 40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75 through 90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 through 99 101
59 134 100 100
60 130
</TABLE>
- --------
*including the pro rata portion of any Monthly Deduction made for a period
beyond the date of death.
A-79
<PAGE>
New England Variable Life Separate Account of New England Life Insurance
Company
Report of Independent Accountants
To the Policy Owners and Board of Directors of New England Life Insurance
Company:
We have audited the accompanying statement of assets and liabilities of the
New England Variable Life Separate Account (comprised of Capital Growth Sub-
Account, Bond Income Sub-Account, Money Market Sub-Account, Stock Index Sub-
Account, Managed Sub-Account, Midcap Value Sub-Account (formerly Avanti Growth
Sub-Account), Growth and Income Sub-Account (formerly Value Growth Sub-
Account), Small Cap Sub-Account, U.S. Government Sub-Account, Balanced Sub-
Account, Equity Growth Sub-Account, International Magnum Equity Sub-Account
(formerly International Equity Sub-Account), Venture Value Sub-Account, Bond
Opportunities Sub-Account, Equity-Income Sub-Account, Overseas Sub-Account,
High Income Sub-Account and Asset Manager Sub-Account) of New England Life
Insurance Company as of December 31, 1998, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended for all Sub-Accounts. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the respective aforementioned
Sub-Accounts comprising the New England Variable Life Separate Account of New
England Life Insurance Company as of December 31, 1998, and the results of
their operations and the changes in their net assets for each of the three
years in the period then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1999
F-1
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
----------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
-------------- ----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments in New England Zenith
Fund, Variable Insurance Products
Fund, and Variable Insurance
Products Fund II at value
(Note 2)........................ $1,062,879,735 $63,810,233 $91,999,048 $112,951,497 $58,280,968 $36,325,954 $66,354,407
<CAPTION>
Shares Cost
--------- --------------
<S> <C> <C>
Capital Growth
Series......... 2,270,965 $ 846,910,241
Back Bay
Advisors Bond
Income Series.. 580,674 62,600,962
Back Bay
Advisors Money
Market Series.. 919,990 91,999,048
Westpeak Stock
Index Series... 575,256 72,986,331
Back Bay
Advisors
Managed Series. 280,521 44,995,302
Goldman Sachs
Midcap Value
Series......... 295,718 40,133,483
Westpeak Growth
and Income
Series......... 318,506 52,737,711
Loomis Sayles
Small Cap
Series......... 466,286 68,072,072
Salomon Brothers
U.S. Government
Series......... 67,545 759,527
Loomis Sayles
Balanced
Series......... 927,883 13,354,477
Alger Equity
Growth Series.. 4,069,269 71,472,170
Morgan Stanley
International
Magnum Equity
Series......... 1,025,541 11,496,216
Davis Venture
Value Series... 4,661,398 87,902,713
Salomon Brothers
Bond
Opportunities
Series......... 105,941 1,257,497
VIP Equity-
Income
Portfolio...... 6,075,186 114,838,775
VIP Overseas
Portfolio...... 4,647,523 78,413,065
VIP High Income
Portfolio...... 981,426 11,927,393
VIP II Asset
Manager
Portfolio...... 505,178 7,927,108
--------------
Total $1,679,784,090
==============
Amount due and accrued (payable) from
policy-related transactions, net... 177,286 141,063 1,688,024 146,440 (922) 61,118 58,059
Dividends receivable................ -- -- 317,906 -- -- -- --
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Total Assets........................ 1,063,057,021 63,951,296 94,004,978 113,097,938 58,280,046 36,387,072 66,412,466
Liabilities
Due New England Life Insurance
Company........................... 88,352,429 6,135,252 8,674,054 12,388,146 5,030,060 3,676,010 7,460,673
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Total Liabilities................. 88,352,429 6,135,252 8,674,054 12,388,146 5,030,060 3,676,010 7,460,673
-------------- ----------- ----------- ----------- ------------ ----------- -----------
Net Assets for Variable Life
Insurance Policies................. $ 974,704,592 $57,816,044 $85,330,924 $100,709,791 $53,249,987 $32,711,062 $58,951,793
============== =========== =========== ============ ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund
- ----------------------------------------------------------------------------------------- -------------------------------------
International
Small U.S. Equity Magnum Venture Bond Equity- High
Cap Government Balanced Growth Equity Value Opportunities Income Overseas Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account
- ----------- ---------- ----------- ------------ ------------- ------------ ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$71,588,857 $774,736 $14,391,467 $102,179,339 $11,691,171 $107,911,360 $1,210,903 $154,432,484 $93,181,595 $11,315,839
134,394 5,294 13,282 356,305 15,466 52,450 7,704 9,726 (100,707) 15,136
-- -- -- -- -- -- -- -- -- --
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
71,723,251 780,030 14,404,749 102,535,644 11,706,637 107,963,810 1,218,608 154,442,210 93,080,888 11,330,975
7,924,364 88,418 1,928,101 11,661,794 1,388,081 12,691,342 127,954 15,888,809 8,807,089 1,342,020
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
7,924,364 88,418 1,928,101 11,661,794 1,388,081 12,691,342 127,954 15,888,809 8,807,089 1,342,020
- ----------- -------- ----------- ------------ ----------- ------------ ---------- ------------ ----------- -----------
$63,798,887 $691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654 $138,553,401 $84,273,799 $ 9,988,955
=========== ======== =========== ============ =========== ============ ========== ============ =========== ===========
<CAPTION>
Variable
Insurance
Products
Fund II
- ------------------------ --------------
Small Asset
Cap Manager
Sub- Sub-
Account Account Total
- ------------ ---------- --------------
<S> <C> <C>
$71,588,857 $9,174,668 $2,070,454,260
134,394 271 2,780,390
-- -- 317,906
- ------------ ---------- --------------
71,723,251 9,174,938 2,073,552,557
7,924,364 987,748 194,552,345
- ------------ ---------- --------------
7,924,364 987,748 194,552,345
- ------------ ---------- --------------
$63,798,887 $8,187,191 $1,879,000,212
============ ========== ==============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
------------ ---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends.............. $136,031,595 $4,500,888 $2,243,738 $ 1,665,717 $ 4,920,327 $ 8,522,091 $ 4,438,526
Expense
Mortality and expense
risk charge (Note 3).. 5,675,180 329,452 281,233 574,859 295,717 213,136 321,673
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net investment income
(loss)................ 130,356,415 4,171,436 1,962,505 1,090,858 4,624,610 8,308,955 4,116,853
Net Realized and
Unrealized Gain (Loss)
on Investments
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of period.... 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,665
End of period.......... 215,969,495 1,209,273 -- 39,965,167 13,285,666 (3,807,527) 13,616,695
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net change in
unrealized
appreciation
(depreciation)........ 124,603,132 317,214 -- 20,076,109 3,838,229 (10,771,908) 6,758,031
Net realized gain on
investments........... 5,610,899 1,800 -- 190,803 163,910 236,891 14,655
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net realized and
unrealized gain (loss)
on investments........ 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686
------------ ---------- ---------- ----------- ----------- ------------ -----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $260,570,446 $4,490,449 $1,962,505 $21,357,770 $ 8,626,750 $ (2,226,063) $10,889,538
============ ========== ========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund
- --------------------------------------------------------------------------------------- ----------------------------------
International
Small U.S. Equity Magnum Venture Bond Equity- High
Cap Government Balanced Growth Equity Value Opportunities Income Overseas Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account Account Account
- ----------- ---------- ---------- ----------- ------------- ----------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,148,975 $32,331 $ 607,129 $ 3,598,904 $ 251,292 $ 2,912,129 $ 81,480 $ 8,088,940 $6,093,523 $ 1,064,286
380,727 (2,318) 52,939 452,661 48,632 512,333 (9,440) 902,569 550,070 67,547
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
768,248 34,649 554,190 3,146,243 202,660 2,399,796 90,920 7,186,371 5,543,453 996,739
5,422,058 (1,916) 642,612 5,391,267 (155,005) 10,716,783 (2,256) 32,699,163 11,137,299 964,520
3,516,783 15,209 1,036,991 30,707,168 194,954 20,008,648 (46,594) 39,593,709 14,768,529 (611,552)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,905,274) 17,125 394,379 25,315,901 349,959 9,291,865 (44,337) 6,894,545 3,631,231 (1,576,072)
20,862 11 6,840 56,142 5,897 22,521 493 561,003 333,272 20,913
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
(1,884,412) 17,136 401,219 25,372,043 355,856 9,314,386 (43,844) 7,455,548 3,964,503 (1,555,159)
- ----------- ------- ---------- ----------- --------- ----------- -------- ----------- ---------- -----------
$(1,116,164) $51,785 $ 955,409 $28,518,286 $ 558,517 $11,714,181 $ 47,076 $14,641,919 $9,507,956 $ (558,420)
=========== ======= ========== =========== ========= =========== ======== =========== ========== ===========
<CAPTION>
Variable
Insurance
Products
Fund II
- ------------------------ ------------
Small Asset
Cap Manager
Sub- Sub-
Account Account Total
- ------------- ---------- ------------
<S> <C> <C>
$ 1,148,975 $ 835,511 $187,037,382
380,727 50,140 10,697,110
- ------------- ---------- ------------
768,248 785,371 176,340,272
5,422,058 971,097 203,203,584
3,516,783 1,247,559 390,670,172
- ------------- ---------- ------------
(1,905,274) 276,461 187,466,588
20,862 4,137 7,251,049
- ------------- ---------- ------------
(1,884,412) 280,598 194,717,637
- ------------- ---------- ------------
$(1,116,164) $1,065,969 $371,057,909
============= ========== ============
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
New England Zenith Fund
--------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and
Growth Income Market Index Managed Value Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
------------ ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends.............. $184,229,729 $3,419,409 $1,852,865 $ 1,082,727 $5,025,764 $2,781,138 $3,928,553
Expense
Mortality and expense
risk charge (Note 3).. 4,170,905 253,374 241,048 333,771 229,423 207,451 190,264
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net investment income
(loss)................ 180,058,824 3,166,035 1,611,817 748,956 4,796,341 2,573,687 3,738,289
Net Realized and
Unrealized Gain (Loss)
on Investments
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
End of year............ 91,366,363 892,059 -- 19,889,059 9,447,437 6,964,381 6,858,664
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net change in
unrealized
appreciation
(depreciation)........ (46,643,042) 851,540 -- 12,256,046 3,309,808 2,141,065 3,751,574
Net realized gain on
investments........... 1,699,829 15,488 -- 35,165 242,079 87,159 17,721
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments........ (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295
------------ ---------- ---------- ----------- ---------- ---------- ----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $135,115,611 $4,033,063 $1,611,817 $13,040,167 $8,348,228 $4,801,911 $7,507,584
============ ========== ========== =========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
International
Small U.S. Equity Magnum Venture Bond
Cap Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
- ---------- ---------- -------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$6,279,206 $9,089 $438,430 $4,721,050 $ 209,389 $1,822,395 $43,914
275,141 2,290 50,941 265,599 51,702 276,055 9,400
- ---------- ------ -------- ---------- --------- ---------- -------
6,004,065 6,799 387,489 4,455,451 157,687 1,546,340 34,514
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153)
5,422,058 (1,916) 642,612 5,391,267 (155,006) 10,716,783 (2,256)
- ---------- ------ -------- ---------- --------- ---------- -------
2,362,493 (1,097) 405,987 3,306,878 (291,197) 8,318,760 (1,103)
20,956 1 55,231 75,802 8,303 21,718 201
- ---------- ------ -------- ---------- --------- ---------- -------
2,383,449 (1,096) 461,218 3,382,680 (282,894) 8,340,478 (902)
- ---------- ------ -------- ---------- --------- ---------- -------
$8,387,514 $5,703 $848,707 $7,838,131 $(125,207) $9,886,818 $33,612
========== ====== ======== ========== ========= ========== =======
<CAPTION>
- ---------------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- ------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
$ 8,872,794 $5,434,055 $393,295 $528,401 $231,072,203
676,059 447,597 41,502 33,135 7,755,657
- ----------- ---------- -------- -------- ------------
8,196,735 4,986,458 351,793 495,266 223,316,546
16,409,989 9,502,216 362,600 547,647 194,486,245
32,699,163 11,137,299 964,520 971,097 203,203,584
- ----------- ---------- -------- -------- ------------
16,289,174 1,635,083 601,920 423,450 8,717,339
126,489 67,905 12,234 5,368 2,491,649
- ----------- ---------- -------- -------- ------------
16,415,663 1,702,988 614,154 428,818 11,208,988
- ----------- ---------- -------- -------- ------------
$24,612,398 $6,689,446 $965,947 $924,084 $234,525,534
=========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-7
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Operations
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
New England Zenith Fund
-------------------------------------------------------------------------------
Capital Bond Money Stock Midcap Growth and
Growth Income Market Index Managed Value Income
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends.............. $ 32,991,113 $2,579,133 $1,306,712 $ 841,454 $2,942,415 $1,494,679 $1,804,344
Expense
Mortality and expense
risk charge (Note 3).. 2,981,244 192,456 160,903 168,590 158,607 137,775 100,738
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net investment income
(loss)................ 30,009,869 2,386,677 1,145,809 672,864 2,783,808 1,356,904 1,703,606
Net Realized and
Unrealized Gain (Loss)
on Investments
Net unrealized
appreciation
(depreciation) on
investments:
Beginning of year...... 71,963,590 997,195 -- 2,853,587 5,216,548 2,881,100 2,105,777
End of year............ 138,009,405 40,519 -- 7,633,013 6,137,629 4,823,316 3,107,090
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net change in
unrealized
appreciation
(depreciation)........ 66,045,815 (956,676) -- 4,779,426 921,081 1,942,216 1,001,313
Net realized gain
(loss) on investments. 985,421 299 -- 1,808 69,775 27,429 18,964
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net realized and
unrealized gain (loss)
on investments........ 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277
------------ ---------- ---------- ---------- ---------- ---------- ----------
Net Increase (Decrease)
in Net Assets Resulting
from Operations........ $ 97,041,105 $1,430,300 $1,145,809 $5,454,098 $3,774,664 $3,326,549 $2,723,883
============ ========== ========== ========== ========== ========== ==========
</TABLE>
* For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-8
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
International
Small U.S. Equity Magnum Venture Bond
Cap Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account* Account Account Account Account Account*
- ---------- ---------- -------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$1,624,708 $ 702 $104,939 $ 44,863 $ 71,347 $ 444,012 $ 1,218
90,146 28 11,713 104,685 19,385 64,656 40
- ---------- ----- -------- ---------- -------- ---------- -------
1,534,562 674 93,226 (59,822) 51,962 379,356 1,178
768,552 -- 3,769 65,901 24,089 171,931 --
3,059,565 (819) 236,625 2,084,389 136,191 2,398,023 (1,153)
- ---------- ----- -------- ---------- -------- ---------- -------
2,291,013 (819) 232,856 2,018,488 112,102 2,226,092 (1,153)
31,570 -- 2,318 11,723 159 4,907 --
- ---------- ----- -------- ---------- -------- ---------- -------
2,322,583 (819) 235,174 2,030,211 112,261 2,230,999 (1,153)
- ---------- ----- -------- ---------- -------- ---------- -------
$3,857,145 $(145) $328,400 $1,970,389 $164,223 $2,610,355 $ 25
========== ===== ======== ========== ======== ========== =======
<CAPTION>
- ----------------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- ------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ----------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
$ 2,662,990 $1,164,550 $199,463 $174,907 $ 50,453,549
428,473 325,346 19,551 20,483 4,984,819
- ----------- ---------- -------- -------- ------------
2,234,517 839,204 179,912 154,424 45,468,730
9,642,454 4,022,725 167,043 269,255 101,153,516
16,409,989 9,502,216 362,600 547,647 194,486,245
- ----------- ---------- -------- -------- ------------
6,767,535 5,479,491 195,557 278,392 93,332,729
27,750 44,049 1,942 4,122 1,232,236
- ----------- ---------- -------- -------- ------------
6,795,285 5,523,540 197,499 282,514 94,564,965
- ----------- ---------- -------- -------- ------------
$ 9,029,802 $6,362,744 $377,411 $436,938 $140,033,695
=========== ========== ======== ======== ============
</TABLE>
See Notes to Financial Statements
F-9
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Changes in Net Assets
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
New England Zenith Fund
------------------------------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and Small
Growth Income Market Index Managed Value Income Cap
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Operating
Activities
Net investment
income (loss).. $ 130,356,415 $ 4,171,436 $ 1,962,505 $ 1,090,858 $ 4,624,610 $ 8,308,955 $ 4,116,853 $ 768,248
Net realized and
unrealized gain
(loss) on
investments.... 130,214,031 319,014 -- 20,266,912 4,002,139 (10,535,017) 6,772,686 (1,884,412)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase
(decrease) in
net assets
resulting from
operations..... 260,570,446 4,490,449 1,962,505 21,357,770 8,626,750 (2,226,063) 10,889,538 (1,116,164)
From Policy-
Related
Transactions
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 130,346,621 10,522,040 221,378,611 15,997,005 6,508,238 8,067,127 10,034,046 16,979,803
Net transfers
(to) from other
sub-
accounts....... 28,412,166 9,220,311 (149,270,654) 22,094,429 6,317,021 (102,089) 15,004,643 9,499,585
Net transfers to
New England
Life Insurance
Company........ (136,266,249) (7,932,456) (21,844,962) (16,290,249) (6,742,406) (4,094,516) (8,744,105) (9,074,771)
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Increase in
net assets
resulting from
policy related
transactions... 22,492,538 11,809,895 50,262,995 21,801,185 6,082,853 3,870,522 16,294,584 17,404,617
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net increase in
net assets..... 283,062,984 16,300,344 52,225,500 43,158,955 14,709,603 1,644,459 27,184,123 16,288,452
Net Assets, at
beginning of the
period.......... 691,641,608 41,515,700 33,105,424 57,550,836 38,540,384 31,066,603 31,767,670 47,510,435
------------- ----------- ------------- ------------ ----------- ------------ ----------- -----------
Net Assets, at
end of the
period.......... $ 974,704,592 $57,816,044 $ 85,330,924 $100,709,791 $53,249,987 $ 32,711,062 $58,951,793 $63,798,887
============= =========== ============= ============ =========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
F-10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
- ---------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 34,649 $ 554,190 $ 3,146,243 $ 202,660 $ 2,399,796 $ 90,920
17,136 401,219 25,372,043 355,856 9,314,386 (43,844)
- ---------- ----------- ------------ ----------- ------------ ----------
51,785 955,409 28,518,286 558,517 11,714,181 47,076
-- 3,185,034 18,566,913 3,131,225 24,165,947 --
590,096 3,794,185 16,305,214 999,735 23,584,994 612,788
(111,452) (2,333,228) (14,453,624) (1,503,958) (15,609,387) (156,947)
- ---------- ----------- ------------ ----------- ------------ ----------
478,644 4,645,991 20,418,503 2,627,002 32,141,554 455,841
- ---------- ----------- ------------ ----------- ------------ ----------
530,429 5,601,400 48,936,789 3,185,519 43,855,735 502,917
161,183 6,875,248 41,937,060 7,133,037 51,416,733 587,737
- ---------- ----------- ------------ ----------- ------------ ----------
$ 691,612 $12,476,648 $ 90,873,849 $10,318,556 $ 95,272,468 $1,090,654
========== =========== ============ =========== ============ ==========
<CAPTION>
Variable Insurance
Variable Insurance Products
Products Fund Fund II
- --------------------------------------- -------------------------------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
$ 7,186,371 $ 5,543,453 $ 996,739 $ 785,371 $ 176,340,272
7,455,548 3,964,503 (1,555,159) 280,598 194,717,637
- ------------ ------------ ----------- ------------ ---------------
14,641,919 9,507,956 (558,420) 1,065,969 371,057,909
26,170,240 17,386,996 2,434,923 1,626,307 516,501,076
8,474,098 342,473 2,823,884 1,297,121 --
(18,064,178) (10,788,946) (1,891,706) (1,251,084) (277,154,223)
- ------------ ------------ ----------- ------------ ---------------
16,580,160 6,940,523 3,367,101 1,672,344 239,346,853
- ------------ ------------ ----------- ------------ ---------------
31,222,080 16,448,479 2,808,682 2,738,313 610,404,762
107,331,321 67,825,320 7,180,273 5,448,878 1,268,595,450
- ------------ ------------ ----------- ------------ ---------------
$138,553,401 $ 84,273,799 $ 9,988,955 $ 8,187,191 $1,879,000,212
============ ============ =========== ============ ===============
</TABLE>
See Notes to Financial Statements
F-11
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Changes in Net Assets
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
New England Zenith Fund
-----------------------------------------------------------------------------------------------------------
Capital Bond Money Stock Midcap Small
Growth Income Market Index Managed Value Growth and Cap
Sub- Sub- Sub- Sub- Sub- Sub- Income Sub- Sub-
Account Account Account Account Account Account Account Account
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Operating
Activities
Net investment
income (loss).. $ 180,058,824 $ 3,166,035 $ 1,611,817 $ 748,956 $ 4,796,341 $ 2,573,687 $ 3,738,289 $ 6,004,065
Net realized and
unrealized gain
(loss) on
investments.... (44,943,213) 867,028 -- 12,291,211 3,551,887 2,228,224 3,769,295 2,383,449
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase
(decrease) in
net assets
resulting from
operations..... 135,115,611 4,033,063 1,611,817 13,040,167 8,348,228 4,801,911 7,507,584 8,387,514
From Policy-
Related
Transactions
Net premiums
transferred
from New
England Life
Insurance
Company
(Note 4)....... 115,563,292 9,916,442 112,790,933 11,030,326 6,066,893 8,052,822 6,483,236 12,931,007
Net transfers
(to) from other
sub-
accounts....... 19,184,703 2,250,884 (100,492,346) 13,670,086 2,168,458 728,467 6,112,407 13,551,252
Net transfers to
New England
Life Insurance
Company........ (103,221,618) (7,435,545) (10,617,259) (11,516,905) (6,628,199) (5,007,957) (5,507,253) (8,882,069)
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets
resulting from
policy related
transactions... 31,526,377 4,731,781 1,681,328 13,183,507 1,607,152 3,773,332 7,088,390 17,600,190
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net increase in
net assets..... 166,641,988 8,764,844 3,293,145 26,223,674 9,955,380 8,575,243 14,595,974 25,987,704
Net Assets, at
beginning of the
year............ 524,999,620 32,750,856 29,812,279 31,327,162 28,585,004 22,491,360 17,171,696 21,522,731
------------- ----------- ------------- ------------ ----------- ----------- ----------- -----------
Net Assets, at
end of the year. $ 691,641,608 $41,515,700 $ 33,105,424 $ 57,550,836 $38,540,384 $31,066,603 $31,767,670 $47,510,435
============= =========== ============= ============ =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-12
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account
- ---------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 6,799 $ 387,489 $ 4,455,451 $ 157,687 $ 1,546,340 $ 34,514
(1,096) 461,218 3,382,680 (282,894) 8,340,478 (902)
-------- ----------- ----------- ----------- ------------ --------
5,703 848,707 7,838,131 (125,207) 9,886,818 33,612
-- 2,146,406 14,606,449 3,056,999 13,157,429 --
118,925 2,461,028 6,194,266 1,537,466 22,596,463 563,357
(9,482) (1,814,302) (8,772,068) (1,574,196) (10,885,947) (36,000)
-------- ----------- ----------- ----------- ------------ --------
109,443 2,793,132 12,028,647 3,020,269 24,867,945 527,357
-------- ----------- ----------- ----------- ------------ --------
115,146 3,641,839 19,866,778 2,895,062 34,754,763 560,969
46,037 3,233,409 22,070,282 4,237,975 16,661,970 26,768
-------- ----------- ----------- ----------- ------------ --------
$161,183 $ 6,875,248 $41,937,060 $ 7,133,037 $ 51,416,733 $587,737
======== =========== =========== =========== ============ ========
<CAPTION>
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- -------------------------------------- ---------------------------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
$ 8,196,735 $ 4,986,458 $ 351,793 $ 495,266 $ 223,316,546
16,415,663 1,702,988 614,154 428,818 11,208,988
- ------------ ----------- ----------- ----------- ---------------
24,612,398 6,689,446 965,947 924,084 234,525,534
23,866,781 17,551,475 2,042,291 1,403,144 360,665,925
5,377,892 1,724,137 1,829,771 422,784 --
(18,885,322) (9,549,079) (1,756,377) (881,229) (212,980,807)
- ------------ ----------- ----------- ----------- ---------------
10,359,351 9,726,533 2,115,685 944,699 147,685,118
- ------------ ----------- ----------- ----------- ---------------
34,971,749 16,415,979 3,081,632 1,868,783 382,210,652
72,359,572 51,409,341 4,098,641 3,580,095 886,384,798
- ------------ ----------- ----------- ----------- ---------------
$107,331,321 $67,825,320 $ 7,180,273 $5,448,878 $1,268,595,450
============ =========== =========== =========== ===============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Statement of Changes in Net Assets
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
New England Zenith Fund
--------------------------------------------------------------------------------------------------------
Growth
Capital Bond Money Stock Midcap and Small
Growth Income Market Index Managed Value Income Cap
Sub- Sub- Sub- Sub- Sub- Sub- Sub- Sub-
Account Account Account Account Account Account Account Account
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
From Operating
Activities
Net investment
income (loss)...... $ 30,009,869 $ 2,386,677 $ 1,145,809 $ 672,864 $ 2,783,808 $ 1,356,904 $ 1,703,606 $ 1,534,562
Net realized and
unrealized gain
(loss) on
investments........ 67,031,236 (956,377) -- 4,781,234 990,856 1,969,645 1,020,277 2,322,583
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
Net Increase
(decrease) in net
assets resulting
from operations.... 97,041,105 1,430,300 1,145,809 5,454,098 3,774,664 3,326,549 2,723,883 3,857,145
From Policy-Related
Transactions
Net premiums
transferred from
New England Life
Insurance Company
(Note 4)........... 111,194,198 8,517,031 79,806,482 6,566,717 5,631,293 7,140,375 5,201,936 5,440,860
Net transfers (to)
from other sub-
accounts........... (1,541,352) 1,894,963 (61,482,739) 5,875,439 1,412,522 2,859,556 2,274,270 10,060,122
Net transfers to New
England Life
Insurance Company.. (76,528,987) (5,770,575) (9,089,129) (5,144,242) (4,232,475) (5,172,577) (3,338,871) (4,380,392)
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
Net Increase in net
assets resulting
from policy related
transactions....... 33,123,859 4,641,419 9,234,614 7,297,914 2,811,340 4,827,354 4,137,335 11,120,590
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
Net increase in net
assets............. 130,164,964 6,071,719 10,380,423 12,752,012 6,586,004 8,153,903 6,861,218 14,977,735
Net Assets, at
beginning of the
year................ 394,834,656 26,679,137 19,431,856 18,575,150 21,999,000 14,337,457 10,310,478 6,544,996
------------ ----------- ------------ ----------- ----------- ----------- ----------- -----------
Net Assets, at end of
the year............ $524,999,620 $32,750,856 $ 29,812,279 $31,327,162 $28,585,004 $22,491,360 $17,171,696 $21,522,731
============ =========== ============ =========== =========== =========== =========== ===========
</TABLE>
*For the period July 1, 1996 (Commencement of Operations) through December 31,
1996.
See Notes to Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
International
U.S. Equity Magnum Venture Bond
Government Balanced Growth Equity Value Opportunities
Sub- Sub- Sub- Sub- Sub- Sub-
Account* Account Account Account Account Account*
- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 674 $ 93,226 $ (59,822) $ 51,962 $ 379,356 $ 1,178
(819) 235,174 2,030,211 112,261 2,230,999 (1,153)
------- ---------- ----------- ----------- ----------- -------
(145) 328,400 1,970,389 164,223 2,610,355 25
-- 811,932 9,286,073 1,454,605 4,876,053 --
46,951 2,383,695 11,496,667 2,908,047 9,510,686 27,190
(769) (708,829) (6,395,345) (1,242,748) (3,721,564) (447)
------- ---------- ----------- ----------- ----------- -------
46,182 2,486,798 14,387,395 3,119,904 10,665,175 26,743
------- ---------- ----------- ----------- ----------- -------
46,037 2,815,198 16,357,784 3,284,127 13,275,530 26,768
-- 418,211 5,712,498 953,848 3,386,440 --
------- ---------- ----------- ----------- ----------- -------
$46,037 $3,233,409 $22,070,282 $ 4,237,975 $16,661,970 $26,768
======= ========== =========== =========== =========== =======
<CAPTION>
- -----------------------------------------------------------------------------
Variable
Insurance
Variable Insurance Products
Products Fund Fund II
- -------------------------------------- ---------
Equity- High Asset
Income Overseas Income Manager
Sub- Sub- Sub- Sub-
Account Account Account Account Total
- ------------ ------------ ---------- ---------- --------------
<C> <C> <C> <C> <C>
$ 2,234,517 $ 839,204 $ 179,912 $ 154,424 $ 45,468,730
6,795,285 5,523,540 197,499 282,514 94,564,965
- ------------ ------------ ---------- ---------- --------------
9,029,802 6,362,744 377,411 436,938 140,033,695
20,426,731 17,135,189 970,763 1,258,847 285,719,085
9,029,810 1,051,463 1,631,762 560,948 --
(13,479,623) (11,522,274) (623,788) (649,631) (152,002,266)
- ------------ ------------ ---------- ---------- --------------
15,976,918 6,664,378 1,978,737 1,170,164 133,716,819
- ------------ ------------ ---------- ---------- --------------
25,006,720 13,027,122 2,356,148 1,607,102 273,750,514
47,352,852 38,382,219 1,742,493 1,972,993 612,634,284
- ------------ ------------ ---------- ---------- --------------
$ 72,359,572 $ 51,409,341 $4,098,641 $3,580,095 $ 886,384,798
============ ============ ========== ========== ==============
</TABLE>
See Notes to Financial Statements
F-15
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements
1. Nature of Business. New England Variable Life Separate Account (the
"Account") of New England Life Insurance Company ("NELICO") was established by
NELICO's Board of Directors on January 31, 1983 in accordance with the
regulations of the Delaware Insurance Department and is now operating in
accordance with the regulations of the Commonwealth of Massachusetts Division
of Insurance. The Account is registered as a unit investment trust under the
Investment Company Act of 1940. The assets of the Account are owned by NELICO.
The net assets of the Account are restricted from use in the ordinary business
of NELICO.
Effective with the merger on August 30, 1996 of New England Mutual Life
Insurance Company ("NEMLICO") and Metropolitan Life Insurance Company ("MLI"),
NEMLICO ceased to exist, with MLI as the surviving company of the merger.
NELICO then became an indirect wholly-owned subsidiary of MLI.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Sub-Accounts. The Account has eighteen investment sub-accounts each of
which invest in the shares of one portfolio of the New England Zenith Fund
("Zenith Fund"), the Variable Insurance Products Fund or the Variable
Insurance Products Fund II. The portfolios of the Zenith Fund, the Variable
Insurance Products Fund and the Variable Insurance Products Fund II in which
the sub-accounts invest are referred to herein as the "Eligible Funds". The
Zenith Fund, the Variable Insurance Products Fund and the Variable Insurance
Products Fund II are diversified, open-end management investment companies.
The Account purchases or redeems shares of the eighteen Eligible Funds based
on the amount of net premiums invested in the Account, transfers among the
sub-accounts, policy loans, surrender payments, and death benefit payments.
The values of the shares of the Eligible Funds are determined as of the close
of the New York Stock Exchange (normally 4:00 p.m. EST) on each day the
Exchange is open for trading. Realized gains and losses on the sale of
Eligible Funds' shares are computed on the basis of identified cost on the
trade date. Income from dividends is recorded on the ex-dividend date. Charges
for investment advisory fees and other expenses are reflected in the carrying
value of the assets of the Eligible Funds.
3. Mortality and Expense Risk Charges. NELICO charges the Account for the
mortality and expense risk NELICO assumes. The mortality risk assumed by
NELICO is the risk that insureds may live for shorter periods of time than
NELICO estimated when setting its cost of insurance charges. The expense risk
assumed by NELICO is the risk that the deductions for sales and administrative
charges may prove insufficient to cover actual cost. If these deductions are
insufficient to cover the cost of the mortality and expense risk assumed by
NELICO, NELICO absorbs the resulting losses and makes sufficient transfers to
the Fund from its general assets. Conversely, if those deductions are more
than sufficient after the establishment of any contingency reserves deemed
prudent or required by law, the excess is retained by NELICO. Currently, the
charges are made daily at an annual rate of .35% of the Account assets
attributable to fixed premium ("Zenith Life") variable policies, .45% of the
Account assets attributable to single premium ("Zenith Life One") variable
life policies, .60% of the Account assets attributable to variable ordinary
("Zenith Life Plus" , "Zenith Life Plus II" and "Zenith Variable Whole Life")
life policies and limited payment ("Zenith Life Executive 65") variable life
policies, .90% and .75% of the Account assets attributable to variable
survivorship ("Zenith Survivorship Life") life policies, and .75% of the
Account assets attributable to flexible premium ("Zenith Flexible Life")
variable life policies. For the modified single premium ("American Gateway")
and flexible premium ("Zenith Executive Advantage Plus") variable life
policies mortality and expense risk charges are not charged daily against the
sub-account assets but are deducted from the policy cash values monthly at an
annual rate of .90% and a maximum annual rate of .75%, respectively.
4. Net Premium Transfers and Deductions from Cash Value. Certain deductions
are made from each premium payment paid to NELICO to arrive at a net premium
that is transferred to the Account. Certain deductions are made from cash
value in the sub-accounts. These deductions, depending on the policy, could
include sales loads, administrative charges, premium tax charges, risk
charges, cost of insurance charges, and charges for rider benefits and special
risk charges.
F-16
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
5. Federal Income Taxes. For federal income tax purposes the Account's
operations are included with those of NELICO. NELICO intends to make
appropriate charges against the Account in the future if and when tax
liabilities arise.
6. Investment Advisers. The adviser and sub-adviser for each series of the
Zenith Fund are listed in the chart below. TNE Advisers, Inc., which is an
indirect subsidiary of NELICO, Capital Growth Management Limited Partnership
("CGM"), and each of the sub-advisers are registered with the SEC as
investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
Series Adviser Sub-Adviser
------ ------------------ --------------------------------------
<S> <C> <C>
Capital Growth CGM* --
Back Bay Advisors Money Market TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Bond Income TNE Advisers, Inc. Back Bay Advisors, L.P.*
Back Bay Advisors Managed TNE Advisers, Inc. Back Bay Advisors, L.P.*
Westpeak Stock Index TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Westpeak Growth and Income TNE Advisers, Inc. Westpeak Investment Advisors, L.P.*
Goldman Sachs Midcap Value Series TNE Advisers, Inc. Goldman Sachs Asset Management, Inc
Loomis Sayles Small Cap TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Loomis Sayles Balanced TNE Advisers, Inc. Loomis, Sayles & Company, L.P.*
Morgan Stanley International Magnum TNE Advisers, Inc. Morgan Stanley Dean Witter
Equity Investment Management, Inc.
Davis Venture Value TNE Advisers, Inc. Davis Selected Advisers, L.P.
Alger Equity Growth TNE Advisers, Inc. Fred Alger Management, Inc.
Salomon Brothers U.S. Government TNE Advisers, Inc. Salomon Brothers Asset Management, Inc
Salomon Brothers Strategic Bond
Opportunities TNE Advisers, Inc. Salomon Brothers Asset Management, Inc
</TABLE>
*An affiliate of NELICO
Effective May 1, 1997 the Draycott International Equity Series was renamed the
Morgan Stanley International Magnum Equity Series and a new Sub-advisory
agreement between TNE Advisers, Inc. and Morgan Stanley Dean Witter Investment
Management, Inc. (formerly Morgan Stanley Asset Management Inc.) went into
effect replacing the prior agreement between TNE Advisers, Inc. and Draycott
Partners, Ltd.
Effective May 1, 1998 Goldman Sachs Asset Management, ("Goldman Sachs"),
became the subadvisor of the Loomis Sayles Avanti Growth Series, succeeding
Loomis Sayles & Company, L.P., and the name of the Series was changed to the
"Goldman Sachs Midcap Value Series". Goldman Sachs is a separate operating
division of Goldman, Sachs & Co., a privately-owned global financial services
company.
F-17
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
7. Investment Purchases and Sales. The following table shows the aggregate
cost of Eligible Fund shares purchased and proceeds from the sales of Eligible
Fund shares for each sub-account for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Capital Growth Series $229,923,840 $194,572,879
Back Bay Advisors Money Market Series 303,898,559 250,343,059
Back Bay Advisors Bond Income Series 29,019,450 16,718,466
Back Bay Advisors Managed Series 16,871,874 10,374,817
Westpeak Stock Index Series 52,293,114 27,237,590
Westpeak Growth and Income Series 31,543,693 13,028,848
Goldman Sachs Midcap Value Series 13,255,960 10,518,399
Loomis Sayles Small Cap Series 36,489,723 19,320,276
Loomis Sayles Balanced Series 9,318,701 4,071,999
Morgan Stanley International Magnum Equity Series 7,480,032 4,717,292
Davis Venture Value Series 59,616,224 23,838,504
Alger Equity Growth Series 42,615,754 18,064,237
Salomon Bothers U.S. Government Series 867,216 285,257
Salomon Bothers Strategic Bond Opportunities
Series 1,003,667 429,636
VIP Equity-Income Portfolio 50,932,583 36,386,679
VIP Overseas Portfolio 34,976,709 29,742,167
VIP High Income Portfolio 8,610,053 5,246,052
VIP II Asset Manager Portfolio 4,502,242 2,748,465
</TABLE>
8. Net Investment Returns. The following table shows the net investment return
of the Sub-Account for each type of variable life insurance policy investing
in the Account. The net investment return reflects the appropriate mortality
and expense risk charge against sub-account assets, where applicable, for each
type of variable life insurance policy shown (in the case of American Gateway
Series, and Zenith Executive Advantage Plus, the mortality and expense risk
charge is deducted monthly from the cash values rather than daily from sub-
account assets and, therefore, does not impact sub-account net investment
returns). These figures do not reflect charges deducted from premiums and the
cash values of the policies. Such charges will affect the actual cash values
and benefits of the policies. Certain amounts have been restated to conform
with the current calculation of net investment return to provide greater
comparability with industry convention.
F-18
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Fixed Premium ("Zenith Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.30% (3.82)% 53.45% (6.38)% 14.57% (7.39)% 37.55% 20.65% 23.05 % 33.63 %
Bond Income............. 11.91% 7.71 % 17.55% 7.80 % 12.22% (3.70)% 20.78% 4.24% 10.50 % 8.66 %
Money Market............ 8.87% 7.81 % 5.84% 3.43 % 2.61% 3.61 % 5.33% 4.76% 4.97 % 4.90 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.70% (4.48)% 29.98% 6.92 % 9.34% 0.76 % 36.44% 22.04% 32.03 % 27.49 %
Managed................. 18.67% 2.85 % 19.75% 6.33 % 10.26% (1.46)% 30.81% 14.62% 26.12 % 19.24 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.47% (0.62)% 29.90% 17.20% 16.91 % (5.79)%
Growth and Income........................................... 13.97% (1.55)% 35.99% 17.68% 33.01 % 24.02 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.29% 6.69 % 34.62% 13.88% 27.66 % 11.24 %
Overseas.................................................... 14.57% 1.37 % 9.30% 12.82% 11.17 % 12.36 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.45)% 28.40% 30.22% 24.42 % (2.04)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.58)% 20.18% 13.63% 17.26 % (4.66)%
Asset Manager........................................................ (4.41)% 16.55% 14.20% 20.23 % 14.65 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.84% 12.78% 25.19 % 47.27 %
Balanced...................................................................... 13.75% 16.50% 15.77 % 8.73 %
International Magnum Equity................................................... 3.85% 6.30% (1.64)% 6.90 %
Venture Value................................................................. 21.64% 25.40% 33.03 % 14.02 %
</TABLE>
F-19
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Single Premium ("Zenith Life One") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.17% (3.91)% 53.29% (6.47)% 14.46% (7.38)% 37.41% 20.53% 22.92 % 33.49 %
Bond Income............. 11.79% 7.60 % 17.43% 7.69 % 12.10% (3.80)% 20.66% 4.14% 10.39 % 8.55 %
Money Market............ 8.77% 7.71 % 5.74% 3.33 % 2.51% 3.35 % 5.23% 4.65% 4.87 % 4.79 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.57% (4.58)% 29.85% 6.81 % 9.23% 0.66 % 36.30% 21.91% 31.90 % 27.36 %
Managed................. 18.55% 2.75 % 19.63% 6.22 % 10.15% (1.56)% 30.67% 14.51% 25.99 % 19.12 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.39% (0.72)% 29.77% 17.08% 16.80 % (5.88)%
Growth and Income........................................... 13.90% (1.65)% 38.85% 17.56% 32.87 % 23.89 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income............................................... 9.22% 6.59 % 34.49% 13.77% 27.53 % 11.13 %
Overseas.................................................... 14.49% 1.27 % 9.19% 12.70% 11.05 % 12.24 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.52)% 28.27% 30.09% 24.29 % (2.14)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.61)% 20.06% 13.52% 17.14 % (4.76)%
Asset Manager........................................................ (4.45)% 16.43% 14.09% 20.11 % 14.53 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.76% 12.66% 25.06 % 47.12 %
Balanced...................................................................... 13.67% 16.39% 15.66 % 8.62 %
International Magnum Equity................................................... 3.79% 6.19% (1.74)% 6.79 %
Venture Value................................................................. 21.56% 25.27% 32.90 % 13.90 %
</TABLE>
F-20
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Variable Ordinary ("Zenith Life Plus", "Zenith Life Plus II" and "Zenith
Variable Whole Life") and Limited Payment ("Zenith Life Executive 65") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 29.98% (4.06)% 53.06% (6.61)% 14.28% (7.62)% 37.21% 20.34% 22.74 % 33.29 %
Bond Income............. 11.63% 7.44 % 17.25% 7.53 % 11.94% (3.94)% 20.47% 3.98% 10.23 % 8.39 %
Money Market............ 8.60% 7.54 % 5.58% 3.18 % 2.36% 3.35 % 5.07% 4.50% 4.71 % 4.63 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.37% (4.72)% 29.65% 6.65 % 9.07% 0.51 % 36.10% 21.73% 31.70 % 27.17 %
Managed................. 18.37% 2.59 % 19.45% 6.06 % 9.99% (1.70)% 30.48% 14.34% 25.81 % 18.94 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.28% (0.87)% 29.57% 16.90% 16.62 % (6.03)%
Growth and Income........................................... 13.78% (1.80)% 35.65% 17.38% 32.67 % 23.71 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.11% 6.43 % 34.29% 13.59% 27.34 % 10.96 %
Overseas.................................................... 14.38% 1.12 % 9.02% 12.53% 10.89 % 12.08 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.61)% 28.08% 29.90% 24.11 % (2.28)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.66)% 19.88% 13.35% 16.96 % (4.90)%
Asset Manager........................................................ (4.49)% 16.26% 13.91% 19.93 % 14.36 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.64% 12.49% 24.88 % 46.90 %
Balanced...................................................................... 13.56% 16.21% 15.48 % 8.46 %
International Magnum Equity................................................... 3.68% 6.03% (1.89)% 6.63 %
Venture Value................................................................. 21.44% 25.08% 32.70 % 13.73 %
</TABLE>
F-21
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Variable Survivorship ("Zenith Survivorship Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts*
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 29.59% (4.35)% 52.61% (6.90)% 13.94% (7.90)% 36.80% 19.98% 22.37% 32.89 %
Bond Income............. 11.29% 7.11 % 16.90% 7.21 % 11.60% (4.23)% 20.12% 3.67% 9.90% 8.07 %
Money Market............ 8.28% 7.22 % 5.26% 2.87 % 2.05% 3.04 % 4.75% 4.18% 4.39% 4.32 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 28.99% (5.01)% 29.27% 6.33 % 8.74% 0.21 % 35.69% 21.36% 31.31% 26.79 %
Managed................. 18.02% 2.28 % 19.10% 5.74 % 9.69% (2.00)% 30.09% 13.99% 25.43% 18.58 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.05% (1.16)% 29.19% 16.55% 16.27% (6.31)%
Growth and Income........................................... 13.55% (2.09)% 35.25% 17.03% 32.28% 23.34 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 8.89% 6.11 % 33.89% 13.25% 26.96% 10.63 %
Overseas.................................................... 14.15% 0.82 % 8.70% 12.19% 10.56% 11.74 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.80)% 27.69% 29.50% 23.73% (2.58)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.76)% 19.53% 13.00% 16.61% (5.19)%
Asset Manager........................................................ (4.59)% 15.91% 13.57% 19.57% 14.02 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.39% 12.15% 24.50 % 46.46 %
Balanced...................................................................... 13.33% 15.86% 15.14 % 8.13 %
International Magnum Equity................................................... 3.48% 5.71% (2.18)% 6.31 %
Venture Value................................................................. 21.20% 24.71% 32.30 % 13.39 %
</TABLE>
* Based on a mortality and expense risk charge at an annual rate of .90%.
Certain Zenith Survivorship Life Policies currently have a mortality and
expense risk charge at an annual rate of .75%.
F-22
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Flexible Premium ("Zenith Flexible Life") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
---------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 31.88% (5.73)% 52.83% (6.75)% 14.11% (7.76)% 37.00% 20.16% 22.56 % 33.09 %
Bond Income............. 11.46% 7.28 % 17.08% 7.37 % 11.77% (4.08)% 20.29% 3.82% 10.06 % 8.23 %
Money Market............ 8.44% 7.38 % 5.42% 3.02 % 2.20% 3.20 % 4.91% 4.34% 4.55 % 4.48 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 29.18% (4.86)% 29.46% 6.49 % 8.90% 0.36 % 35.90% 21.55% 31.51 % 26.98 %
Managed................. 18.20% 2.44 % 19.28% 5.90 % 9.82% (1.85)% 30.28% 14.16% 25.62 % 18.76 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.16% (1.01)% 29.38% 16.72% 16.45 % (6.17)%
Growth and Income........................................... 13.67% (1.94)% 35.45% 17.21% 32.47 % 23.52 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.00% 6.27 % 34.09% 13.42% 27.15 % 10.79 %
Overseas.................................................... 14.26% 0.97 % 8.86% 12.36% 10.72 % 11.91 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.71)% 27.88% 29.70% 23.92 % (2.43)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (0.71)% 19.71% 13.17% 16.79 % (5.04)%
Asset Manager........................................................ (4.54)% 16.08% 13.74% 19.75 % 14.19 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 24.51% 12.32% 24.69 % 46.68 %
Balanced...................................................................... 13.44% 16.03% 15.31 % 8.29 %
International Magnum Equity................................................... 3.58% 5.87% (2.04)% 6.47 %
Venture Value................................................................. 21.32% 24.89% 32.50 % 13.56 %
</TABLE>
F-23
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Flexible Premium ("Zenith Executive Advantage Plus") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
----------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth.......... 30.76 % (3.48)% 53.98% (6.05)% 14.97% (7.07)% 38.03% 21.07% 23.48 % 34.09 %
Bond Income............. 12.30 % 8.09 % 17.96% 8.18 % 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 %
Money Market............ 9.25 % 8.19 % 6.21% 3.80 % 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 30.15 % (4.14)% 30.43% 7.30 % 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 %
Managed................. 19.08 % 3.21 % 20.17% 6.70 % 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)%
Growth and Income........................................... 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity-Income............................................... 9.55% 6.93 % 35.90% 13.75% 28.11 % 11.63 %
Overseas.................................................... 14.84% 1.21 % 11.02% 12.43% 11.56 % 12.75 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.23)% 28.84% 30.68% 24.85 % (1.69)%
<CAPTION>
8/31/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income.......................................................... (.37)% 20.79% 13.75% 17.67 % (4.33)%
Asset Manager........................................................ (4.65)% 17.68% 14.31% 20.65 % 15.05 %
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 25.13% 13.17% 25.63 % 47.78 %
Balanced...................................................................... 14.01% 16.91% 16.18 % 9.11 %
International Magnum Equity................................................... 4.01% 6.67% (1.30)% 7.27 %
Venture Value................................................................. 21.92% 25.84% 33.50 % 14.41 %
</TABLE>
F-24
<PAGE>
New England Variable Life Separate Account of
New England Life Insurance Company
Notes to Financial Statements--(Continued)
Modified Single Premium ("American Gateway") Policies
<TABLE>
<CAPTION>
Net Investment Return of the Sub-Accounts
--------------------------------------------------------------------------------------------
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond Income............. 12.30% 8.09 % 17.96% 8.18% 12.61% (3.36)% 21.20% 4.61% 10.89 % 9.04 %
Money Market............ 9.25% 8.19 % 6.21% 3.80% 2.97% 3.97 % 5.70% 5.13% 5.34 % 5.26 %
<CAPTION>
1/1/89- 1/1/90- 1/1/91- 1/1/92- 1/1/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Index............. 30.15% (4.14)% 30.43% 7.30% 9.72% 1.12 % 36.92% 22.47% 32.50 % 27.93 %
Managed................. 19.08% 3.21 % 20.17% 6.70% 10.65% (1.11)% 31.26% 15.03% 26.56 % 19.65 %
<CAPTION>
4/30/93- 1/1/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Midcap Value................................................ 14.74% (0.27)% 30.35% 17.61% 17.32 % (5.46)%
Growth and Income........................................... 14.24% (1.21)% 36.47% 18.10% 33.47 % 24.45 %
<CAPTION>
5/2/94- 1/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Small Cap............................................................ (3.23)% 28.84% 30.68% 24.85 % (1.69)%
<CAPTION>
5/1/95- 1/1/96- 1/1/97- 1/1/98-
Sub-Account 12/31/95 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth................................................................. 25.13% 13.17% 25.63 % 47.78 %
Balanced...................................................................... 14.01% 16.91% 16.18 % 9.11 %
International Magnum Equity................................................... 4.01% 6.67% (1.30)% 7.27 %
Venture Value................................................................. 21.92% 25.84% 33.50 % 14.41 %
<CAPTION>
6/28/96- 1/1/97- 1/1/98-
Sub-Account 12/31/96 12/31/97 12/31/98
- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government........................................................................ 4.55% 8.47 % 7.61 %
Strategic Bond Opportunities........................................................... 8.46% 11.07 % 2.04 %
</TABLE>
The net investment return of a sub-account is calculated by taking the
difference between the sub-account's ending value and the beginning value for
the period and dividing it by the beginning value for the period.
F-25
<PAGE>
New England Life Insurance Company
Independent Auditors' Report
New England Life Insurance Company:
We have audited the accompanying consolidated balance sheets of New England
Life Insurance Company (formerly New England Variable Life Insurance Company)
and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income and comprehensive income, equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the New England Life Insurance
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
February 16, 1999
F-26
<PAGE>
New England Life Insurance Company
Consolidated Balance Sheets
December 31, 1998 and 1997 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed Maturities:
Available for Sale, at Estimated Fair Value............ $ 769,364 $ 734,391
Equity Securities....................................... 13,240 9,399
Policy Loans............................................ 135,800 104,783
Real Estate............................................. 0 2,757
Short-Term Investments.................................. 52,285 27,944
Other Invested Assets................................... 16,372 24,349
---------- ----------
Total Investments.................................... 987,061 903,623
Cash and Cash Equivalents................................ 43,598 74,148
Deferred Policy Acquisition Costs........................ 710,961 565,769
Accrued Investment Income................................ 21,802 18,712
Premiums and Other Receivables........................... 145,117 63,036
Other Assets............................................. 111,067 62,326
Separate Account Assets.................................. 3,258,383 1,988,225
---------- ----------
Total Assets......................................... $5,277,989 $3,675,839
========== ==========
LIABILITIES AND EQUITY
Liabilities
Future Policy Benefits................................... $ 561,746 $ 500,429
Policyholder Account Balances............................ 210,242 150,648
Other Policyholder Funds................................. 169,090 98,143
Policyholder Dividends Payable........................... 17,774 14,719
Short and Long-Term Debt................................. 82,855 85,981
Income Taxes Payable:
Current................................................. 10,984 9,102
Deferred................................................ 42,334 42,066
Due to Parent............................................ 789 107,337
Other Liabilities........................................ 78,721 45,647
Separate Account Liabilities............................. 3,258,383 1,988,225
---------- ----------
Total Liabilities.................................... 4,432,918 3,042,297
---------- ----------
Commitments and Contingencies (Notes 2, 4, 8 and 9)
Equity
Common Stock, $125.00 par value; 50,000 shares
authorized, 20,000 shares issued and outstanding........ 2,500 2,500
Preferred Stock, $0.00 par value; 1,000,000 shares
authorized, 200,000 shares issued and outstanding....... 0 0
Contributed Capital...................................... 647,273 447,273
Retained Earnings........................................ 177,859 166,422
Accumulated Other Comprehensive Income................... 17,439 17,347
---------- ----------
Total Equity......................................... 845,071 633,542
---------- ----------
Total Liabilities and Equity............................. $5,277,989 $3,675,839
========== ==========
</TABLE>
F-27
<PAGE>
New England Life Insurance Company
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 1998, 1997, and 1996 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums........................................... $100,689 $ 63,616 $ 37,410
Universal Life and Investment-Type Product Policy
Fees ............................................. 173,766 145,157 101,756
Net Investment Income.............................. 49,077 61,059 49,628
Investment Gains (Losses), Net..................... 5,610 890 8,822
Commissions, Fees and Other Income................. 192,411 28,302 44,930
-------- -------- --------
Total Revenues................................. 521,553 299,024 242,546
-------- -------- --------
BENEFITS AND OTHER DEDUCTIONS
Policyholder Benefits.............................. 149,687 100,180 65,520
Interest Credited to Policyholder Account Balances
.................................................. 7,735 6,220 5,558
Policyholder Dividends............................. 22,989 21,325 14,830
Other Operating Costs and Expenses................. 316,659 144,342 143,886
-------- -------- --------
Total Benefits and Other Deductions............ 497,070 272,067 229,794
-------- -------- --------
Income From Operations Before Income Taxes......... 24,483 26,957 12,752
Income Taxes....................................... 13,046 4,988 3,051
-------- -------- --------
Net Income......................................... $ 11,437 $ 21,969 $ 9,701
-------- -------- --------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Investment Gains (Losses) (Net of
Related Offsets, Reclassification Adjustments
and Income Taxes, $(299), $(16,588) and $24,212,
Respectively)................................... 92 13,620 (22,629)
-------- -------- --------
Comprehensive Income (Loss)........................ $ 11,529 $ 35,589 $(12,928)
======== ======== ========
</TABLE>
F-28
<PAGE>
New England Life Insurance Company
Consolidated Statements of Equity
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Capital Accumulated
Stock & Other
Contributed Retained Comprehensive
Capital Earnings Income Total
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1995..... $193,396 $134,752 $26,356 $354,504
Net Income........................ 9,701 9,701
Change in Net Unrealized
Investment Gains (Losses)........ (22,629) (22,629)
Contributed Capital............... 208,846 208,846
-------- -------- ------- --------
Balances at December 31, 1996..... 402,242 144,453 3,727 550,422
Net Income........................ 21,969 21,969
Change in Net Unrealized
Investment Gains (Losses)........ 13,620 13,620
Contributed Capital............... 47,531 47,531
-------- -------- ------- --------
Balances at December 31, 1997..... 449,773 166,422 17,347 633,542
Net Income........................ 11,437 11,437
Change in Net Unrealized
Investment Gains (Losses)........ 92 92
Contributed Capital............... 200,000 200,000
-------- -------- ------- --------
Balances at December 31, 1998..... $649,773 $177,859 $17,439 $845,071
======== ======== ======= ========
</TABLE>
F-29
<PAGE>
New England Life Insurance Company
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars in Thousands)
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Cash Used in Operating Activities........ $(311,296) $(121,838) $ (85,674)
--------- --------- ---------
Cash Flows from Investing Activities:
Sales, Maturities and Repayments of:
Available for Sale Fixed Maturities......... 164,566 178,003 276,420
Held to Maturity Fixed Maturities........... 0 0 10,519
Equity Securities........................... 39,333 0 0
Mortgage Loans on Real Estate............... 0 0 2,210
Other, Net.................................. 721 128 0
Purchases of:
Available for Sale Fixed Maturities......... (184,810) (326,059) (259,713)
Equity Securities........................... (80,066) 0 0
Real Estate................................. (3,644) 0 (480)
Fixed Asset Property and Equipment.......... (1,459) (101) (3,786)
Other Assets................................ (89) 0 (11,024)
Net Change in Short-Term Investments........ (24,341) 128,616 (135,731)
Net Change in Policy Loans.................. (31,017) (28,520) (18,052)
Other, Net.................................. 1,631 177 67
--------- --------- ---------
Net Cash Used in Investing Activities........ (119,175) (47,756) (139,570)
--------- --------- ---------
Cash Flows from Financing Activities:
Capital Contributions....................... 200,000 46,681 159,162
Borrowed Money.............................. (8,670) (3,181) 0
Policyholder Account Balances:
Deposits.................................... 358,090 244,338 482,552
Withdrawals................................. (149,499) (95,066) (364,933)
Financial Reinsurance Receivables........... 0 1,823 (37,519)
--------- --------- ---------
Net Cash Provided by Financing Activities.... 399,921 194,595 239,262
--------- --------- ---------
Change in Cash and Cash Equivalents.......... (30,550) 25,001 14,018
Cash and Cash Equivalents, Beginning of Year. 74,148 49,147 35,129
--------- --------- ---------
Cash and Cash Equivalents, End of Year....... $ 43,598 $ 74,148 $ 49,147
========= ========= =========
Supplemental Cash Flow Information:
Interest Paid............................... $ 3,830 $ 1,495 $ 1,523
========= ========= =========
Income Taxes Paid........................... $ 14,118 $ 5,470 $ 4,721
========= ========= =========
Net Income................................... $ 11,437 $ 21,969 $ 9,701
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating
Activities:
Change in Deferred Policy Acquisition Costs,
Net......................................... (145,787) (140,578) (68,626)
Change in Accrued Investment Income......... (3,090) (4,999) 909
Change in Premiums and Other Receivables.... (82,081) (57,095) 4,370
Gains from Sales of Investments, Net........ (5,610) (890) (8,822)
Depreciation and Amortization Expenses...... 13,137 10,085 3,118
Interest Credited to Policyholder Account
Balances................................... 7,735 6,220 5,558
Universal Life and Investment-Type Product
Policy Fee Income.......................... (173,766) (145,157) (101,756)
Change in Future Policy Benefits............ 61,317 35,540 18,202
Change in Other Policyholder Funds.......... 70,947 6,309 (283)
Change in Policyholder Dividends Payable.... 3,055 5,701 1,671
Change in Income Taxes Payable.............. 2,358 1,674 (6,634)
Other, Net.................................. (70,948) 139,383 56,918
--------- --------- ---------
Net Cash Used in Operating Activities........ $(311,296) $(121,838) $ (85,674)
========= ========= =========
</TABLE>
F-30
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
New England Life Insurance Company and its subsidiaries (the Company or
NELICO) is a wholly-owned stock life insurance subsidiary of Metropolitan Life
Insurance Company (MetLife). The Company is headquartered in Boston,
Massachusetts as a Massachusetts chartered company. The Company principally
provides variable life insurance and variable annuity contracts through a
network of general agencies located throughout the United States. The Company
also provides participating traditional life insurance, fixed annuity
contracts, pension products, as well as, group life, group medical, and group
disability coverage.
Prior to the merger of New England Mutual Life Insurance Company (NEMLICO)
with MetLife on August 30, 1996, New England Life Insurance Company (NELICO),
formerly known as New England Variable Life Insurance Company (NEVLICO) was a
subsidiary of NEMLICO. As a result of the merger, NEMLICO ceased to exist as a
separate mutual life insurance company, and NELICO became a subsidiary of
MetLife. NELICO has continued after the merger to conduct its existing
business as well as administer the business activities of the former parent
NEMLICO. (Note 13)
Certain companies that were subsidiaries of NEMLICO became subsidiaries of
NELICO as of the merger. The principal subsidiaries of which NELICO owns 100%
of the outstanding common stock are: Exeter Reassurance Company, Ltd., New
England Pension and Annuity Company, and Newbury Insurance Company, Limited,
for insurance operations and New England Securities Corporation and TNE
Advisers, Inc. for other operations. On February 28, 1997, NELICO created and
became the sole owner of New England Life Holdings, Inc. which was established
as a holding company for the non-insurance operations of the Company,
principally, New England Securities and TNE Advisers, Inc. On April 30, 1998
the Company acquired all of the outstanding stock of NL Holding Corporation
and its wholly owned subsidiaries, Nathan and Lewis Securities, Inc., and
Nathan and Lewis Associates, Inc. Subsequent to the acquistion, NL Holding
Corporation was transferred to New England Life Holdings, Inc. The principal
business activities of the subsidiaries are disclosed below.
Exeter Reassurance Company, Ltd., (Exeter) was incorporated in Bermuda on
November 15, 1994, and registered as an insurer under The Insurance Act 1978
(Bermuda). Exeter engages in financial reinsurance of life insurance and
annuity policies, which are principally assumed from MetLife.
New England Pension and Annuity Company (NEPA) was incorporated under the laws
of the State of Delaware on September 12, 1980. NEPA holds licenses to sell
annuity contracts in 22 states, but is currently not actively engaged in the
sale or distribution of insurance products.
Newbury Insurance Company, Limited (Newbury) was incorporated in Bermuda on
May 1, 1987, and is registered as a Class 2 insurer under The Insurance Act
1978 (Bermuda). Newbury provides professional liability and personal injury
coverage to the agents of NELICO through a facultative reinsurance agreement
with Lexington Insurance Company.
New England Securities Corporation (NES), a National Association of Securities
Dealers (NASD) registered broker/dealer, conducts business as a wholesale
distributor of investment products through the sales force of NELICO.
Established in 1968, NES offers a range of investment products including
mutual funds, investment partnerships, and individual securities. In 1994, NES
became a Registered Investment Advisor with the Securities and Exchange
Commission (SEC) and now offers individually managed portfolios. NES is the
national distributor for variable annuity and variable life products issued by
NELICO.
F-31
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
TNE Advisers, Inc. was incorporated on August 26, 1994, and is registered as
an investment adviser with the SEC, under the Investment Advisers Act of 1940.
TNE Advisers, Inc. was organized to serve as an investment adviser to certain
series of the New England Zenith Fund and does not intend to engage in any
business activities other than providing investment management and
administrative services. TNE Advisers, Inc. changed its name to New England
Investment Management, Inc. in March 1999.
NL Holding Corporation (NL Holding), engages in Securities brokerage, dealer
trading in fixed income securities, over the counter stock, unit investment
trusts, and the sale of insurance related products and annuities, sold through
licensed brokers and independent agents. Nathan and Lewis Securities, Inc., a
wholly owned subsidiary, is a National Association of Securities Dealers
(NASD) registered broker/dealer.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP), and include
the accounts of NELICO and its subsidiaries in which NELICO has control and a
majority economic interest. The consolidated financial statements as of and
for the year ended December 31, 1996 have been prepared as though the current
reporting entity had always existed. Significant intercompany transactions and
balances have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates include those used in
determining deferred policy acquisition costs, investment allowances and the
liability for future policyholder benefits. Actual results could differ from
those estimates.
Effective July 1, 1997, management realigned its fixed maturity investment
classifications and transferred all securities classified as held to maturity
to available for sale. As a result, consolidated equity at July 1, 1997
increased by $798, excluding the effects of deferred income taxes, amounts
attributable to participating pension contractholders and adjustments of
deferred policy acquisition costs and future policy benefits.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of New
England Life Insurance and its subsidiaries, partnerships and joint ventures
in which NELICO has a controlling interest. All material intercompany accounts
and transactions have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which, it does not have a controlling
interest, under the equity method of accounting.
Certain amounts in the prior years' financial statements have been
reclassified to conform with the 1998 presentation.
Investments
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income, net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification
basis. All security transactions are recorded on a trade date basis.
F-32
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Short-term investments are stated at amortized cost, which approximates fair
value.
Other invested assets are reported at their estimated fair value.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
Property and Equipment
Property, equipment and leasehold improvements which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using the straight line method over the estimated
useful lives of the assets which generally range from 4 to 15 years or the
term of the lease, if shorter. Amortization of leasehold improvements is
provided using the straight line method over the lesser of the term of the
leases or the estimated useful life of the improvements.
Accumulated depreciation on property and equipment and amortization of
leasehold improvements was $24,772, and $13,203 at December 31, 1998 and 1997,
respectively. Related depreciation and amortization expense was $11,570,
$10,085, and $3,118 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Deferred Policy Acquisition Costs
The costs of acquiring new business that vary with, and are primarily related
to, the production of new business are deferred. Such costs, which consist
principally of commissions, agency and policy issue expenses, are amortized
over the expected life of the contract for participating traditional life,
variable life, universal life, investment-type products, and variable
annuities. Generally, deferred policy acquisition costs are amortized in
proportion to the present value of estimated gross margins or profits from
investments, mortality, expense margins and surrender charges. Actual gross
profits can vary from management's estimates resulting in increases and
decreases in the rate of amortization. Management periodically updates these
estimates and evaluates the recoverability of deferred policy acquisition
costs. When appropriate, management revises its assumptions of the estimated
gross margins or profits of these contracts, and the cumulative amortization
is reestimated and adjusted by a cumulative charge or credit to current
operations.
Deferred policy acquisition costs for nonmedical health policies are amortized
in proportion to anticipated premiums. Assumptions as to anticipated premiums
are made at the date of policy issuance and are consistently applied during
the life of the contracts. Deviations from estimated experience are reflected
in operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Other Intangible Assets
The excess of cost over the fair value of net assets acquired, which
represents goodwill, and the value of insurance acquired are included in other
assets. Goodwill is amortized on a straight-line basis over 10 years. The
Company reviews goodwill to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results
if a permanent diminution in value is deemed to have occurred.
F-33
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Excess of Purchase Price Over Fair Value of Net Assets Acquired
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Balance, January 1............................. $ 0 $ 0 $ 0
Acquisitions..................................... 23,498 0 0
Dispositions..................................... 0 0 0
Amortization..................................... (1,567) 0 0
------- ------- -------
Net Balance, December 31........................... $21,931 $ 0 $ 0
======= ======= =======
December 31
Accumulated Amortization......................... $(1,567) $ 0 $ 0
======= ======= =======
</TABLE>
Acquisitions
The Company acquired certain assets and assumed certain liabilities of NL
Holding Corporation effective April 30, 1998. The acquisition was accounted
for under the purchase method of accounting and is included in the financial
statements as of the effective date of the transaction. The cost of the
acquisition was $35,082, which represents an initial cash settlement and
payment of direct acquisition costs of $27,873, as well as, accrued contingent
payment arrangements of $7,209 anticipated to be paid to the sellers over a
three year period for years ending December 31, 1998, 1999 and 2000,
respectively. Goodwill of $23,498 was recorded, to be amortized on a straight-
line basis over a ten year period.
The 1998 and 1997 pro forma, unaudited financial data shown as follows
presents the effect of the acquisition as if it had occurred at the beginning
of the respective reporting periods. The pro forma financial data does not
necessarily reflect the results of operations that would have been obtained
had the acquisition occurred on the assumed date, nor is the financial data
necessarily indicative of the results of the combined entities that may be
achieved for any future period.
Pro forma Impact of Acquisition
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue............................................ $ 557,229 $ 381,691
============ ============
Net Income......................................... $ 10,311 $ 25,049
============ ============
</TABLE>
Future Policy Benefits and Policyholder Account Balances
Future policy benefit liabilities for participating traditional life insurance
policies are equal to the aggregate of net level premium reserve for death and
endowment policy benefits and the liability for terminal dividends. The net
level premium reserve is calculated based on the dividend fund interest rate
and mortality rates guaranteed in calculating the cash surrender values
described in such contracts. Interest rates used in establishing such
liabilities range from 4% to 4.5% for life insurance policies.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and
the present value of expected future payments after annuitization. Interest
rates used in establishing such liabilities range from 5.5% to 7%.
F-34
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Future policy benefit liabilities for non-medical health insurance are
calculated as the net GAAP liability plus the unamortized deferred acquisition
costs. Future policy benefit liabilities for disabled lives are estimated
using the present value of benefits method and experience assumptions as to
claim terminations, expenses and interest. Interest rates used in establishing
such liabilities range from 4% to 6.5%.
Policyholder account balances for variable life, universal life and
investment-type contracts are equal to the policy account values, which
consist of an accumulation of gross premium payments plus credited interest
ranging from 3.75% to 6.5%, less expense and mortality charges and
withdrawals.
Recognition of Insurance Revenue and Related Benefits
Premiums related to traditional life and annuity policies with life
contingencies are recognized as income when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated life of
the policies.
Premiums related to non-medical health contracts are recognized as income when
due.
Premiums related to variable life and universal life contracts are credited to
policyholder account balances. Revenues from such contracts consist of amounts
assessed against policyholder account balances for mortality recognized
ratably over the policy period, policy administration charges recognized as
services are provided and surrender charges recognized as earned. Amounts that
are charged to income include interest credited to policyholders and benefit
claims incurred in excess of related policyholder account balances.
Premiums related to investment-type contracts are credited to policyholder
account balances. Revenues from such contracts consist of amounts assessed
against policyholder account balances for contract administration charges
recognized ratably over the policy period. Amounts that are charged to income
include interest credited to policyholders.
Dividends to Policyholders
Dividends to policyholders are determined annually by the Board of Directors.
The aggregate amount of policyholder dividends is related to actual interest,
mortality, morbidity and expense experience for the year, as well as
management's judgment as to the appropriate level of statutory surplus to be
retained by the Company.
Participating Business
Participating business represented approximately 3.52% and 2.94% of the
Company's life insurance in force, and 7.96% and 5.79% of the number of life
insurance policies in force at December 31, 1998 and 1997, respectively.
Participating policies represented approximately 6.15%, 6.22% and 0.74% of
gross life insurance premiums, for the years ended December 31, 1998, 1997 and
1996, respectively.
Income Taxes
NELICO and its eligible life insurance subsidiary, Exeter Reassurance Company,
Ltd., file a consolidated federal income tax return. Separate income tax
returns as required are filed for the other life insurance and non-life
insurance direct subsidiaries. Income tax expense has been calculated in
accordance with the provisions of the Internal Revenue Service Code, as
amended. The Company uses the liability method of accounting for income taxes.
Income tax provisions are based on income reported for financial statement
purposes. The future tax consequences of temporary differences between
financial reporting and tax basis of assets and liabilities are measured as of
the balance sheet dates and are recorded as deferred income tax assets or
liabilities.
F-35
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Reinsurance
The Company has reinsured certain of its life insurance contracts with other
insurance companies under various agreements. Amounts due from reinsurers are
estimated based upon assumptions consistent with those used in establishing
the liabilities related to the underlying reinsured contracts. Policy and
contract liabilities are reported gross of reinsurance credits.
Separate Account Operations
Separate Accounts are established in conformity with the state insurance laws
and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate Account assets are subject to general
account claims only to the extent the value of such assets exceed the Separate
Account liabilities. Investments held in the Separate Accounts (stated at
estimated fair market value) and liabilities of the Separate Accounts
(including participants' corresponding equity in the Separate Accounts) are
reported separately as assets and liabilities. Deposits to Separate Accounts,
investment income, and realized and unrealized gains and losses on the
investments of the Separate Account accrue directly to contractholders and,
accordingly, are not reflected in the Company's financial statements.
Mortality, policy administration and surrender charges to all Separate
Accounts are included in revenues.
Application of Accounting Pronouncements
In December 1997, the AICPA issued SOP No. 97-3 Accounting for Insurance and
Other Enterprises for Insurance Related Assessments (SOP 97-3). SOP 97-3
provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related assessments. The
Company is required to adopt SOP 97-3 as of January 1, 1999. Adoption of SOP
97-3 is not expected to have a material effect on the Company's consolidated
financial condition or results of operations.
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1
provides guidance for determining when an entity should capitalize or expense
external and internal costs of computer software developed or obtained for
internal use. The Company is required to adopt SOP 98-1 as of January 1, 1999.
Adoption of SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 broadly defines start-up activities and provides examples
to help entities determine what costs are and are not within the scope of this
SOP. The Company is required to adopt SOP 98-5 as of January 1, 1999. Adoption
of SOP 98-5 is not expected to have a material effect on the Company's
consolidated financial condition or results of operations.
In October 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position SOP 98-7, Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk (SOP 98-7). SOP 98-7
provides guidance on the method of accounting for insurance and reinsurance
contracts that do not transfer insurance risk, defined in the SOP as the
deposit method. SOP 98-7 classifies insurance and reinsurance contracts for
which the deposit method is appropriate into those that 1) transfer only
significant timing risk, 2) transfer only significant underwriting risk, 3)
transfer neither significant timing or underwriting risk and 4) have an
indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1,
2000. Adoption of SOP 98-7 is not expected to have a material effect on the
Company's consolidated financial condition or results of operations.
F-36
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Effective January 1, 1998, the Company adopted SFAS No. 130 Reporting
Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements. Adoption of SFAS 130 had no effect on the Company's consolidated
financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 131 Disclosures About
Segments of an Enterprise and Related Information (SFAS 131). SFAS 131
establishes standards for reporting financial information and related
disclosures about products and services, geographic areas and major customers
relating to operating segments in annual financial statements. Adoption of
SFAS 131 had no effect on the Company's consolidated financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 requires, among other
things, that all derivatives be recognized in the consolidated balance sheets
as either assets or liabilities and measured at fair value. The corresponding
derivative gains and losses should be reported based upon the hedge
relationship, if such a relationship exists. Changes in the fair value of
derivatives designated as fair value hedges are required to be reported in
income. Changes in the fair value of derivatives designated as cash flow
hedges are required to be reported in other comprehensive income to the extent
the hedge is effective, and until such time as the hedged cash flow is
reported in income, whereupon any associated change in fair value of the
derivative is also reported in income. Changes in the fair value of
derivatives designated as cash flow hedges, to the extent it is ineffective,
are reported in income. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in SFAS
133 are required to be reported in income. The Company is required to adopt
SFAS 133 as of January 1, 2000. The Company is currently in the process of
quantifying the impact of SFAS 133.
2. INVESTMENTS
Fixed Maturity and Equity Securities
The amortized cost, gross unrealized gain (loss) and estimated fair value of
fixed securities and equity securities, by category, are shown below.
Available for Sale Securities
<TABLE>
<CAPTION>
Gross Unrealized
Amortized -----------------Estimated
Cost Gain Loss Fair Value
--------- -------- ------------------
<S> <C> <C> <C> <C>
December 31, 1998
Fixed Maturities:
U. S. Treasury Securities and
obligations of U. S. government
corporations and agencies............. $ 27,260 $ 91 $ 47 $ 27,304
Foreign governments.................... 1,679 0 0 1,679
Corporate.............................. 644,636 43,036 5,139 682,533
Mortgage-backed securities............. 55,027 2,821 0 57,848
-------- -------- ------- --------
Total Fixed Maturities............... $728,602 $ 45,948 $ 5,186 $769,364
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 12,075 1,645 480 13,240
-------- -------- ------- --------
Total Equity Securities.............. $ 12,075 $ 1,645 $ 480 $ 13,240
======== ======== ======= ========
</TABLE>
F-37
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Available for Sale Securities
<TABLE>
<CAPTION>
Gross Unrealized
Amortized -----------------Estimated
Cost Gain Loss Fair Value
--------- -------- ------------------
<S> <C> <C> <C> <C>
December 31, 1997
Fixed Maturities:
U.S. Treasury Securities and
obligations of U.S. government
corporations and agencies............. $ 12,105 $ 101 $ 0 $ 12,206
Foreign governments.................... 2,316 67 0 2,383
Corporate.............................. 620,916 41,564 3,308 659,172
Mortgage-backed securities............. 57,348 3,282 0 60,630
-------- -------- ------- --------
Total Fixed Maturities............... $692,685 $ 45,014 $ 3,308 $734,391
======== ======== ======= ========
Equity Securities:
Common stocks.......................... 9,424 216 241 9,399
-------- -------- ------- --------
Total Equity Securities.............. $ 9,424 $ 216 $ 241 $ 9,399
======== ======== ======= ========
</TABLE>
Included in net unrealized investment gains (losses) are unrealized gains on
foreign currency investments as well as unrealized gains on the associated
forward foreign exchange contracts. Unrealized investment gains (losses)
consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net unrealized gains on investments................................ $ 0 $281
Unrealized gains (losses) on the maturity of forward contracts..... 0 14
---- ----
$ 0 $295
==== ====
</TABLE>
The amortized cost and estimated fair value of bonds classified as available
for sale, by contractual maturity, at December 31, 1998 are shown below.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in one year or less................................. $ 24,215 $ 24,469
Due after one year through five years................... 92,090 93,343
Due after five years through ten years.................. 179,470 191,671
Due after ten years..................................... 377,800 402,033
-------- --------
Subtotal.............................................. 673,575 711,516
Mortgage-backed securities.............................. 55,027 57,848
-------- --------
Total................................................. $728,602 $769,364
======== ========
</TABLE>
Fixed maturities not due at a single maturity date have been included in the
above tables in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
F-38
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Sales of fixed maturities and equity securities are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities classified as available-for-
sale
Proceeds..................................... $159,749 $143,107 $275,008
Gross realized gains......................... $ 10,901 $ 680 $ 19,109
Gross realized losses........................ $ 2 $ 1,454 $ 3,878
Fixed maturities classified as held-to-maturity
Proceeds..................................... $ 0 $ 0 $ 5,291
Gross realized gains......................... $ 0 $ 0 $ 236
Gross realized losses........................ $ 0 $ 0 $ 0
Equity Securities
Proceeds..................................... $ 0 $ 0 $ 0
Gross realized gains......................... $ 0 $ 0 $ 0
Gross realized losses........................ $ 0 $ 0 $ 0
</TABLE>
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed
maturities portfolio.
Assets Held in Trust for the Benefit of Other Parties
Exeter has deposited in a trust for the benefit of MetLife certain assets for
the purpose of allowing MetLife to record a reserve credit as permitted by
regulations of the State of New York. Under the terms of the Trust Agreement
MetLife enjoys broad powers to withdraw funds from the trust for the payment
of policyholder claims incurred by Exeter under its reinsurance treaty and to
direct the investment of funds held in the trust. The Trust Agreement limits
the types of investments that may be held in trust to cash and certificates of
deposit, U.S. Government bonds and notes and publicly traded securities of
U.S. companies having a National Association of Insurance Commissioners (NAIC)
rating of 1. At December 31, 1998 the trust held $530,563 of bonds and short-
term investments, and at December 31, 1997, the trust held $516,491 of bonds
and short-term investments.
Statutory Deposits
The Company had assets on deposit with regulatory agencies of $6,245 and
$7,020, at December 31, 1998 and 1997 respectively.
3. NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES)
The components of net investment income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................. $53,467 $50,348 $44,630
Equity securities................................ (9,118) 4,915 0
Mortgage loans on real estate.................... 0 0 110
Real estate...................................... 4,149 815 55
Policy loans..................................... 6,855 5,081 3,734
Cash, cash equivalents and short-term
Investments..................................... 861 4,160 3,656
Other investment income.......................... 76 591 38
------- ------- -------
Gross investment income.......................... 56,290 65,910 52,223
Investment expenses.............................. (7,213) (4,851) (2,595)
------- ------- -------
Net Investment income............................ $49,077 $61,059 $49,628
======= ======= =======
</TABLE>
F-39
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Realized investment gains (losses), including changes in valuation allowances,
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Fixed maturities................................ $10,899 $ (774) $15,467
Equity securities............................... 0 0 0
Other invested assets........................... (7) 1,032 512
------- ------- -------
Subtotal.................................... 10,892 258 15,979
Amounts allocable to:
Amortization of deferred policy acquisition
costs........................................ 5,282 (632) 7,157
------- ------- -------
Investment gains (losses), net................ $ 5,610 $ 890 $ 8,822
======= ======= =======
The changes in unrealized investment gains (losses), net, included in other
comprehensive income, are as follows:
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Year ended December 31
Balance, beginning of year...................... $17,347 $ 3,727 $26,356
Change in unrealized investment gains
(losses)..................................... 391 30,207 (46,850)
Change in unrealized investment gains (losses)
attributable to:
Deferred policy acquisition cost allowances. (595) (9,446) 12,211
Deferred income tax (expense) benefit....... 296 (7,141) 12,010
------- ------- -------
Balance, end of year............................ $17,439 $17,347 $ 3,727
======= ======= =======
The components of unrealized investment gains (losses), net, included in other
comprehensive income, are as follows:
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
December 31
Balance, end of year, comprised of:
Unrealized investment gains (losses) on:
Fixed Maturities............................ $40,928 $41,706 $11,525
Equity Securities........................... 1,191 0 0
Other....................................... 0 22 (4)
------- ------- -------
42,119 41,728 11,521
Amounts of unrealized investment gains (losses)
attributable to:
Deferred policy acquisition cost allowances... (15,798) (15,202) (5,756)
Deferred income tax (expense) benefit......... (8,882) (9,179) (2,038)
------- ------- -------
Balance, end of year............................ $17,439 $17,347 $ 3,727
======= ======= =======
</TABLE>
4. REINSURANCE AND OTHER INSURANCE TRANSACTIONS
The Company assumes and cedes reinsurance with other insurance companies. The
company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to
meet its obligations under these agreements. The consolidated statements of
income are presented net of reinsurance ceded.
F-40
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Reinsurance recoverables, included in other assets, were outstanding with the
following reinsurers:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
<S> <C> <C>
Paul Revere Life Insurance Company.......................... $10,795 $ 4,548
Cologne Life Reinsurance Company............................ 6,519 3,724
Security Life of Denver Insurance Company................... 4,395 1,804
American United Life Insurance Company...................... 3,852 1,332
Great West Life & Annuity Insurance Company................. 6,394 2,505
Swiss Re Life & Health Limited.............................. 2,422 908
Other....................................................... 17,828 3,164
------- -------
$52,205 $17,985
======= =======
</TABLE>
The effect of reinsurance on premiums earned is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................................ $110,768 $ 30,975 $ 2,682
Reinsurance assumed............................ 58,329 62,315 67,483
Reinsurance ceded.............................. (68,408) (29,674) (32,755)
-------- -------- --------
Net premiums earned............................ $100,689 $ 63,616 $ 37,410
======== ======== ========
</TABLE>
Reinsurance and ceded commissions payables, included in other liabilities,
were $10,162 and $5,852, at December 31, 1998 and 1997, respectively.
The following provides an analysis of the activity in the liability for
benefits relating to group accident and nonmedical health policies and
contracts:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Balance at January 1.......................... $ 809 $ 0 $ 0
Reinsurance recoverables.................... (647) 0 0
--------- ------- ------
Net balance at January 1...................... 162 0 0
--------- ------- ------
Incurred related to:
Current year................................ 303 173 0
Prior years................................. (57) (11) 0
--------- ------- ------
246 162 0
--------- ------- ------
Paid related to:
Current year................................ 2 0 0
Prior years................................. 18 0 0
--------- ------- ------
20 0 0
--------- ------- ------
Balance at December 31........................ 388 162 0
Add: Reinsurance recoverables............... 1,565 647 0
--------- ------- ------
Balance at December 31........................ $ 1,953 $ 809 $ 0
========= ======= ======
</TABLE>
F-41
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
5. INCOME TAXES
The provision for income tax expense (benefit) in the consolidated statements
of income is shown below:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
<S> <C> <C> <C>
1998
Federal............................................ $13,734 $ (788) $12,946
State and Local.................................... 0 100 100
------- ------- -------
Total............................................ $13,734 $ (688) $13,046
======= ======= =======
1997...............................................
Federal............................................ $ 8,473 $(3,772) $ 4,701
State and Local.................................... 316 (29) 287
------- ------- -------
Total............................................ $ 8,789 $(3,801) $ 4,988
======= ======= =======
1996
Federal............................................ $ 5,333 $(1,531) $ 3,802
State and Local.................................... 0 (751) (751)
------- ------- -------
Total............................................ $ 5,333 $(2,282) $ 3,051
======= ======= =======
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income before taxes.............................. $24,483 $26,957 $12,752
Income tax rate.................................. 35% 35% 35%
------- ------- -------
Expected income tax expense at federal statutory
income tax rate................................. 8,569 9,435 4,463
Tax effect of:
Change in valuation allowance.................. 0 0 (13,948)
NOL benefit write-off.......................... 0 0 13,012
Tax exempt investment income................... (100) 0 0
Tax Credits.................................... (100) 0 0
State and local income taxes................... 100 (1,013) (488)
Other, net..................................... 4,577 (3,434) 12
------- ------- -------
Income Tax Expense............................... $13,046 $ 4,988 $ 3,051
======= ======= =======
</TABLE>
Deferred income taxes represent the tax effect of the differences between the
book and tax basis of assets and liabilities. Net deferred income tax
liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Policyholder liabilities............................ $ 177,017 $ 63,723
Other, net.......................................... 15,453 81,988
--------- ---------
Total gross assets................................ 192,470 145,711
--------- ---------
Deferred tax liabilities:
Investments......................................... (1,068) (2,456)
Deferred policy acquisition costs................... (208,881) (168,270)
Unrealized investment gains, net.................... (8,882) (9,179)
Other, net.......................................... (15,973) (7,872)
--------- ---------
Total gross liabilities........................... (234,804) (187,777)
--------- ---------
Net deferred tax liability............................ $ (42,334) $ (42,066)
========= =========
</TABLE>
F-42
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
The sources of the deferred tax expense (benefit) and their tax effects are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Policyholder liabilities...................... $(49,251) $(23,759) $(17,818)
Net operating loss carryforward............... 0 12,548 464
Investments................................... (1,388) 1,319 0
Deferred policy acquisition costs............. 40,611 33,621 21,828
Other, net.................................... 9,340 (27,530) (6,756)
-------- -------- --------
Total....................................... $ (688) $ (3,801) $ (2,282)
======== ======== ========
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Prior to the merger, substantially all employees were employed by NEMLICO and
were covered under the Home Office Retirement Plan and related Select
Employees' Supplemental Retirement Plan (collectively referred to as the
Plans). Subsequent to the merger substantially all of the employees became
employees of the Company and continued to be covered by the Plans, which
became the Plans of the Company. Under the Plans retirement benefits are based
primarily on years of service and the employee's average salary. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes using a different actuarial cost method and
different assumptions from those used for financial reporting purposes.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
December 31,
--------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in projected benefit
obligation
Projected benefit obligation at
beginning of year.................. $210,590 $177,125 $ 46,591 $ 49,654
Service cost........................ 6,927 5,310 942 885
Interest cost....................... 15,878 13,958 3,267 3,707
Actuarial gain...................... 14,831 15,926 1,256 (3,972)
Divestitures........................ 0 0 0 0
Curtailments........................ 0 0 0 0
Terminations........................ 0 0 0 0
Change in benefits.................. 11,935 5,755 (10) 0
Benefits paid....................... (7,674) (7,484) (3,059) (3,683)
-------- -------- -------- --------
Projected benefit obligation at end
of year............................ $252,487 $210,590 $ 48,987 $ 46,591
-------- -------- -------- --------
Change in plan assets
Contract value of plan assets at
beginning of year.................. $150,820 $130,995 $ 0 $ 0
Actual return on plan assets........ 28,309 22,250 0 0
Employer contribution............... 12,997 5,059 0 0
Benefits paid....................... (7,323) (7,484) 0 0
-------- -------- -------- --------
Contract value of plan assets at end
of year............................ $184,803 $150,820 $ 0 $ 0
-------- -------- -------- --------
Over/(Under) funded................. $(67,684) $(59,770) $(48,987) $(46,591)
Unrecognized net asset at
transition......................... (1,674) (2,844) 0 0
Unrecognized net actuarial gains.... 34,350 35,889 (17,787) (18,872)
Unrecognized prior service cost..... 16,854 5,832 (9) 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost...... $(18,154) $(20,893) $(66,783) $(65,463)
======== ======== ======== ========
Qualified plan prepaid pension cost. $ (2,164) $ (7,205) $ 0 $ 0
Non-qualified plan accrued pension
cost............................... (15,990) (13,688) 0 0
-------- -------- -------- --------
Prepaid (accrued) benefit cost...... $(18,154) $(20,893) $ 0 $ 0
======== ======== ======== ========
</TABLE>
F-43
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
Non-Qualified
Qualified Plan Plan Total
------------------ ------------------ ------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected
benefit obligation..... $226,717 $193,652 $ 25,770 $ 16,938 $252,487 $210,590
Aggregate contract value
of plan assets
(principally Company
contracts)............. 184,803 150,820 0 0 184,803 150,820
-------- -------- -------- -------- -------- --------
Over/(Under) funded..... $(41,914) $(42,832) $(25,770) $(16,938) $(67,684) $(59,770)
======== ======== ======== ======== ======== ========
</TABLE>
The assumptions used in determining the aggregate projected benefit obligation
and aggregate contract value for the pension and other benefits were as
follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Benefits
------------------ ----------
1998 1997 1998 1997
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions as of
December 31,
Discount rate............................. 7.25% 7.75% 7.00% 7.75%
Expected return on plan assets............ 8.50% 8.75% -- --
Rate of compensation increase............. 4.50% 5.00% -- --
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
nonpension postretirement benefit obligation was generally 7.40% in 1998,
gradually decreasing to 5.00% over five years and generally 7.80% in 1997,
gradually decreasing to 5.00% over eight years.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One % One %
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components... 14.50% 12.70%
Effect on accumulated postretirement benefit obligation... 12.80% 11.30%
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------- ---------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of periodic
benefit cost
Service cost............ $ 6,927 $ 5,310 $ 5,761 $ 942 $ 885 $ 876
Interest cost........... 15,878 13,958 12,489 3,267 3,707 3,183
Expected return on plan
assets................. (12,866) (22,250) (15,468) 0 0 0
Net amortization and
deferrals.............. 669 11,092 6,009 167 (871) (1,155)
-------- -------- -------- ------ ------ ------
Net periodic benefit
cost................... $ 10,608 $ 8,110 $ 8,791 $4,376 $3,721 $2,904
======== ======== ======== ====== ====== ======
</TABLE>
Savings and Investment Plans
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $2,252, $1,588 and $3,386 for the years ended December
31, 1998, 1997 and 1996, respectively.
F-44
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
7. LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenue. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements for office space, data processing and
other equipment. Future minimum rental and sub-rental income, and minimum
gross rental payments relating to these lease agreements were as follows:
<TABLE>
<CAPTION>
Rental Sub-rental Gross Rental
Income Income Expense
------ ---------- ------------
<S> <C> <C> <C>
1999.......................................... $52 $ 4,066 $ 14,851
2000.......................................... 31 7,845 14,805
2001.......................................... 0 7,854 13,221
2002.......................................... 0 7,864 12,336
2003.......................................... 0 8,026 12,023
Thereafter.................................... 0 34,525 114,855
--- ------- --------
Total....................................... $83 $70,180 $182,091
=== ======= ========
</TABLE>
8. DEBT
In 1995, the Company borrowed $25,000 from a bank, bearing interest, payable
monthly, at a variable rate equal to the greater of the bank's base rate or
money market rates plus 0.6% per annum. The interest rate applied was 6.4%,
5.8% and 5.7% at December 31, 1998, 1997 and 1996, respectively. The loan is
collateralized by sales loads and surrender charges collected on a defined
block of variable life insurance policies issued by the Company. Repayment is
structured in a manner to result in repayment over a term of five years or
less. The carrying value of the loan approximates its fair value of $13,295.
Repayments of principal and interest of $8,612, $3,155 and $0 were made during
1998, 1997 and 1996, respectively. The Company repaid the entire outstanding
balance of the loan in January 1999.
Exeter privately placed $75,118 aggregate principal amount, subordinated notes
payable (the Notes), on December 30, 1994 which are due December 30, 2004,
with no interest payments for the first five years and semiannual interest
payments thereafter. The Notes have been discounted to yield 8.45% for the
first five years and pay interest at 8.845% thereafter. The Notes are
expressly subordinated in right of payment to the insurance liabilities of
Exeter. The Notes are not subject to redemption by Exeter or through the
operation of a sinking fund prior to maturity. Proceeds of the issuance of the
Notes, net of discount, amounted to $50,000. The issue costs of the Notes of
$130 were deducted from Notes, net of discount, to arrive at net subordinated
notes payable of $49,870. The issue cost will be amortized over the life of
the Notes. The Notes are held by MetLife, and the carrying value of the loan
approximates its fair value of $69,560, repayments of $0, $0 and $0 were made
during 1998, 1997 and 1996, respectively.
9. CONTINGENCIES
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company's insurance subsidiaries
pursuant to these laws may be used as credits
F-45
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
for a portion of the Company's premium taxes. The Company paid guaranty fund
assessments of approximately, $202, $42, and $42 in 1998, 1997, and 1996,
respectively, of which $202, $33, and $27 were to be credited against premium
taxes.
The Company has no contingent liabilities that would materially affect the
financial position of the Company or the results of its operations. There are
no pending legal proceedings that are beyond the ordinary course of business
that could have a material financial effect.
10. OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Compensation................................. $ 86,822 $ 58,754 $ 36,172
Commissions.................................. 166,218 77,351 51,617
Interest and debt expense.................... 9,374 6,750 6,261
Amortization of policy acquisition costs..... 31,994 17,723 22,233
Capitalization of policy acquisition costs... (183,064) (157,670) (98,016)
Rent expense, net of sub-lease income........ 4,252 4,473 3,060
Other........................................ 201,063 136,961 122,559
--------- --------- --------
Total...................................... $ 316,659 $ 144,342 $143,886
========= ========= ========
</TABLE>
11. FAIR VALUE INFORMATION
The estimated fair value amounts of financial instruments have been determined
by using available market information and the valuation methodologies
described below. Considerable judgment is often required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein may not necessarily be indicative of amounts that could be
realized in a current market exchange. The use of different assumptions or
valuation methodologies may have a material effect on the estimated fair value
amounts.
Amounts related to the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
December 31, 1998:
Assets
Fixed Maturities......................................... $769,364 $769,364
Equity Securities........................................ 13,240 13,240
Policy loans............................................. 135,800 135,800
Short-term investments................................... 52,285 52,285
Cash and cash equivalents................................ 43,598 43,598
Liabilities
Policyholder account balances............................ 23,365 22,524
Other policyholder funds................................. 7,832 7,832
Short and long-term debt................................. 82,855 82,855
</TABLE>
F-46
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
December 31, 1997:
Assets
Fixed Maturities......................................... $734,391 $734,391
Equity Securities........................................ 9,399 9,399
Policy loans............................................. 104,783 104,783
Short-term investments................................... 27,944 27,944
Cash and cash equivalents................................ 74,148 74,148
Liabilities
Policyholder account balances............................ 13,356 12,593
Other policyholder funds................................. 4,324 4,324
Short and long-term debt................................. 85,981 85,981
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Fixed Maturities and Equity Securities
The fair value of fixed maturities and equity securities that are publicly
traded are based upon quotations obtained from an independent market pricing
service or published by applicable stock exchanges. For securities for which
the market values were not readily available, fair values were estimated by
management, based primarily on interest rates, maturity, credit quality and
average life.
Policy Loans
Policy loans are stated at unpaid principal balances, which approximates fair
value.
Cash and Cash Equivalents and Short-term Investments
The carrying values for cash and cash equivalents and short-term investments
approximated fair market values due to the short-term maturities of these
instruments.
Policyholder Account Balances
The fair value of policyholder account balances are estimated by discounting
expected future cash flows, based on interest rates currently being offered
for similar contracts with maturities consistent with those remaining for the
contracts being valued. Other policyholder funds include liabilities without
defined durations such as policy proceeds and dividends left with the Company.
The estimated fair value of such liabilities, which generally are of short
duration or have periodic adjustments of interest rates, approximates their
carrying value.
Short-term and Long-term Debt
Short-term and long-term debt are stated at unpaid principal balances, which
approximates fair value.
F-47
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
12. STATUTORY FINANCIAL INFORMATION
The reconciliation of statutory surplus and statutory net income, determined
in accordance with accounting practices prescribed or permitted by insurance
regulatory authorities with such amounts determined in conformity with
generally accepted accounting principles were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory surplus............................. $ 456,525 $ 307,290 $ 355,853
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................... (336,821) (279,510) (195,273)
Deferred policy acquisition costs........... 710,961 565,769 434,637
Deferred Federal Income taxes............... (42,334) (42,066) (40,185)
Valuation of investments.................... 53,514 56,873 11,503
Statutory asset valuation reserves.......... 10,636 8,388 3,335
Statutory interest maintenance reserve...... 816 571 306
Surplus notes............................... (69,560) (64,016) (58,911)
Receivables from reinsurance transactions... 26,004 27,519 26,030
Other, net.................................. 35,330 52,724 13,127
--------- --------- ---------
GAAP Equity................................... $ 845,071 $ 633,542 $ 550,422
========= ========= =========
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income (loss)................... $ (28,043) $ (37,358) $ (46,021)
Adjustments to GAAP for:
Future policy benefits and policyholders
account balances........................... (196,754) (311,588) (41,174)
Deferred policy acquisition costs........... 135,788 139,947 68,626
Deferred Federal Income taxes............... 688 3,801 2,282
Valuation of investments.................... (13,490) 0 0
Statutory interest maintenance reserve...... 245 342 231
Other, net.................................. 113,003 226,825 25,757
--------- --------- ---------
Net GAAP Income............................... $ 11,437 $ 21,969 $ 9,701
========= ========= =========
</TABLE>
The Company is currently undergoing an examination by the Massachusetts
Department of Insurance. The Company believes that there will be no material
audit adjustments for the periods under examination.
13. RELATED PARTY TRANSACTIONS
Prior to the merger NELICO operated under an Administrative Services Agreement
with its parent NEMLICO to receive all executive, legal, clerical and other
personnel services. Subsequent to the merger of NEMLICO and MetLife, the
Company entered into an Administrative Services Agreement to provide all
administrative, accounting, legal and similar services to MetLife for certain
administered contracts, which are life insurance and annuity contracts issued
by NEMLICO prior to the merger, and those policies and contracts defined in
the Administrative Services Agreement as Transition Policies which were sold
by the Company's field force post-merger.
The Company charged MetLife $193,641, $186,757 and $88,043 including accruals
for administrative services on NEMLICO administered contracts for 1998, 1997,
and for the period of September 1, 1996 through December 31, 1996,
respectively. Prior to the merger, the Company paid $62,643 to NEMLICO for
administrative services on
F-48
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
variable-life and variable-annuity contracts for the period of January 1, 1996
through August 31, 1996. In addition, $14,123 and $600 for 1998 and 1997,
respectively, was paid or payable by MetLife to the Company for varied and
miscellaneous other services. These services were charged based upon direct
costs incurred. Service fees are recorded by NELICO as a reduction in
operating expenses.
On December 30, 1998 the Company sold to MetLife Credit Corporation shares of
preferred stock for $200,000. In 1997, MetLife made a capital contribution to
the Company of $50,000 in cash. In 1996, MetLife made a non-cash capital
contribution to the Company of common stock of affiliated companies consisting
of Exeter, NEPA, NES, Newbury, Omega Reinsurance Corp., TNE Advisers Inc., and
TNE Information Services Inc. with a total estimated statutory fair value of
$29,558. MetLife also made non-cash capital contributions of home-office
properties of $10,301, socially-responsible investments with a book value of
$11,916, furniture, equipment and leasehold improvements of $27,816, and a
cash contribution of $128,412. Prior to the merger, NEMLICO made a cash
contribution to NELICO of $20,000.
On April 30, 1998 the Company acquired all the outstanding stock of N.L.
Holding Corporation and its subsidiaries, and concurrently contributed such
stock to the Company's downstream holding company, New England Life Holding
Inc. In conjunction with the acquisition, the Company entered into employment
agreements with key individuals of N.L. Holding Corporation. Under these
agreements the Company paid $6,166 in 1998.
The Company entered into a lease agreement with MetLife on August 30, 1996 for
the home-office building that it occupies on 501 Boylston Street in Boston,
Massachusetts. The Company paid lease payments to MetLife of $2,340, $2,340
and $780 in 1998, 1997 and 1996, respectively.
On June 21, 1996, NEMLICO purchased a mortgage from NELICO for $2,217 that
included principal of $2,204, and interest of $13.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1998 were $15,204
and $1,159, respectively. Included in accrued income at December 31, 1998,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$385 and $14, respectively. In 1998, NES earned asset-based income of $9,193
and $139 on average assets of approximately $4,300,000 and $77,000 under
management with NEF and SSR, respectively. Included in accrued income at
December 31, 1998 were amounts receivable for asset-based commissions from NEF
and SSR totaling $593 and $13, respectively.
Commissions earned by NES from sales of New England Funds (NEF) and State
Street Research (SSR) shares, subsidiaries of MetLife, for 1997 were $16,799
and $1,127, respectively. Included in accrued income at December 31, 1997,
were amounts receivable for sales-based commissions from NEF and SSR totaling
$233 and $13, respectively. In 1997, NES earned asset-based income of $8,777
and $61 on average assets of approximately $3,900,000 and $33,000 under
management with NEF and SSR, respectively.
Exeter has a privately-placed subordinated notes payable to MetLife for
$69,560 and $64,016 at December 31, 1998 and 1997, respectively.
Pursuant to certain Reinsurance Agreements, the Company cedes a portion of
premiums on certain variable life, traditional life and universal life
policies to Omega Reinsurance Corporation. Reinsurance premiums paid by the
Company to Omega were $11,539, $10,372 and $5,009 for 1998, 1997 and 1996,
respectively.
Stockholder dividends or other distributions proposed to be paid by NELICO
must be approved by the Massachusetts Commissioner of Insurance if such
dividends or distributions, together with other dividends or distributions
made within the preceding 12 months, exceeds the greater of (1) 10% of
NELICO's statutory surplus as regards policyholders as of the previous
December 31, or (2) NELICO's statutory net gain from operations for the 12
month period ending the previous December 31.
F-49
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Of the statutory profits earned by NELICO on participating policies and
contracts, the portion which shall inure to the benefit of NELICO's
stockholder shall not exceed the larger of (1) 10% of such statutory profits,
or (2) fifty cents per year per thousand dollars of participating life
insurance other than group term insurance in force at the end of the year.
14. SEPARATE ACCOUNTS
Separate accounts reflect non-guaranteed separate accounts totaling $3,258,383
and $1,988,225 at December 31, 1998 and 1997, respectively, wherein the
policyholder assumes the investment risk.
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in
the Company's revenues as universal life and investment-type product policy
fees totaling $30,714, $12,642 and $6,464 in 1998, 1997 and 1996,
respectively.
15. YEAR 2000
The Year 2000 issue is the result of the widespread use of computer programs
written using two digits (rather than four) to define the applicable year.
Such programming was a common industry practice designed to avoid the
significant cost associated with additional mainframe capacity necessary to
accommodate a four digit year field. As a result, any of the Company's
computer systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
systems failure or miscalculations. The Company has conducted a comprehensive
review of its computer systems to identify the systems that could be affected
by the Year 2000 issue and has developed and implemented a plan to resolve the
issue. The Company currently believes that, with modifications to existing
software and converting to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer systems. However,
if such modifications and conversions are not completed on a timely basis, the
Year 2000 issue may have a material impact on the operations of the Company.
Furthermore, even if the Company completes such modifications and conversions
on a timely basis, there can be no assurance that the failure by vendors or
other third parties to solve the Year 2000 issue will not have a material
impact on the operations of the Company. The Company estimates the total cost
to resolve its Year 2000 problem to be approximately $51,000, (unaudited) of
which approximately $41,300 has been incurred through December 31, 1998.
16. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers primarily
in the United States. The Company's core businesses are divided into five
segments: Individual Life, Individual Annuity, Group Pension, Group Accident
and Health, and Corporate. These segments are managed separately because they
either provide different products and services, require different strategies,
or have different technology requirements.
Individual Life sells primarily variable life as well as traditional life
policies. Individual Annuity sells a variety of fixed annuity and variable
annuity contracts. Group Pension sells a variety of group annuity and pension
contracts to corporations and other institutions. Group Accident and Health
provides group life, group medical, and group disability contracts to
corporations and small businesses. Through its Corporate segment, the Company
reports the operating results of subsidiaries as well as items that are not
allocated to any of the business segments.
Set forth in the following tables is certain financial information with
respect to the Company's operating segments for the years ended December 31,
1998, 1997 and 1996. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates the performance of each operating segment based on profit or loss
from operations after income taxes. The Company does not allocate non-
recurring items to the segments.
F-50
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
Allocation of net investment income and investment gains (losses), net were
based on the amount of assets allocated to each segment. Other costs and
operating costs were allocated to each of the segments based on: (i) a review
of the nature of such costs, (ii) time studies analyzing the amount of
employee compensation costs incurred by each segment, and (iii) cost estimates
included in the Company's product pricing.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 48,733 $ 31 $ 417 $ 21,394 $ 30,114 $ 100,689
Universal Life and
Investment-Type
Product Policy Fees.... 161,936 9,332 2,788 (290) 0 173,766
Net Investment Income... (22,496) (1,752) (405) 651 73,079 49,077
Investment Gains,
(Losses) Net........... (182) (7) (4) 17 5,786 5,610
Commissions, Fees, and
Other Income........... 9,408 6,042 1,118 20,430 155,413 192,411
---------- -------- -------- -------- -------- ----------
Total Revenues........ 197,399 13,646 3,914 42,202 264,392 521,553
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 84,709 3,943 874 13,561 46,600 149,687
Interest Credited to
Policyholder
Account Balances....... 6,337 1,264 83 0 51 7,735
Policyholder Dividends.. 1,135 4 0 3 21,847 22,989
Other Operating Costs
and Expenses........... 103,284 14,324 3,617 15,731 179,703 316,659
---------- -------- -------- -------- -------- ----------
Total Benefits and
Other Deductions..... 195,465 19,535 4,574 29,295 248,201 497,070
Income from Operations
Before
Income Taxes........... 1,934 (5,889) (660) 12,907 16,191 24,483
Income Taxes............ 9,968 (402) (423) 3,986 (83) 13,046
---------- -------- -------- -------- -------- ----------
Net Income............ $ (8,034) $ (5,487) $ (237) $ 8,921 $ 16,274 $ 11,437
========== ======== ======== ======== ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 616,959 42,524 2,359 2,511 46,608 710,961
Separate Account Assets. 2,073,552 835,648 235,467 113,716 0 3,258,383
Policyholder
Liabilities............ 380,586 38,912 768 19,233 501,579 941,078
Separate Account
Liabilities............ 2,073,552 835,648 235,467 113,716 0 3,258,383
</TABLE>
F-51
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 27,200 $ 31 $ 0 $ 3,743 $ 32,642 $ 63,616
Universal Life and
Investment-Type
Product Policy Fees.... 139,235 4,732 486 704 0 145,157
Net Investment Income... 31,905 (270) (20) (118) 29,562 61,059
Investment Gains,
(Losses) Net........... 523 0 0 0 367 890
Commissions, Fees, and
Other Income........... 9,542 3,253 266 4,383 10,858 28,302
---------- -------- -------- ------- -------- ----------
Total Revenue........... 208,405 7,746 732 8,712 73,429 299,024
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 71,010 3,431 0 3,827 21,912 100,180
Interest Credited to
Policyholder
Account Balances....... 5,371 664 149 0 36 6,220
Policyholder Dividends.. 507 1 0 0 20,817 21,325
Other Operating Costs
and Expenses........... 98,664 10,777 2,092 6,745 26,064 144,342
---------- -------- -------- ------- -------- ----------
Total Benefits and
Other Deductions..... 175,552 14,873 2,241 10,572 68,829 272,067
Income from Operations
Before Income Taxes.... 32,853 (7,127) (1,509) (1,860) 4,600 26,957
Income Taxes............ 2,701 (1,203) (504) (447) 4,441 4,988
---------- -------- -------- ------- -------- ----------
Net Income............ $ 30,152 $ (5,924) $ (1,005) $(1,413) $ 159 $ 21,969
========== ======== ======== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 498,208 24,226 1,347 877 41,111 565,769
Separate Account Assets. 1,426,347 450,441 111,437 0 0 1,988,225
Policyholder
Liabilities............ 258,880 20,476 197 6,398 463,269 749,220
Separate Account
Liabilities............ 1,426,347 450,441 111,437 0 0 1,988,225
</TABLE>
F-52
<PAGE>
New England Life Insurance Company
Notes to Consolidated Financial Statements--(Continued)
For the Years Ended December 31, 1998, 1997 and 1996 (Dollars In Thousands,
except as noted)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------
Corporate
Individual Individual Group Group and
Life Annuity Pension Life, A&H Subsidiaries Total
---------- ---------- ------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums................ $ 1,729 $ 0 $ 0 $ 56 $ 35,625 $ 37,410
Universal Life and
Investment-Type
Product Policy Fees.... 101,153 603 0 0 0 101,756
Net Investment Income... 23,667 (105) (2) (6) 26,074 49,628
Investment Gains,
(Losses) Net........... 396 0 0 0 8,426 8,822
Commissions, Fees and
Other Income........... 8,340 45 290 363 35,892 44,930
-------- -------- ------ ------- -------- ----------
Total Revenues........ 135,285 543 288 413 106,017 242,546
BENEFITS AND OTHER
DEDUCTIONS
Policyholder Benefits... 25,595 654 0 176 39,095 65,520
Interest Credited to
Policyholder
Account Balances....... 5,345 167 0 0 46 5,558
Policyholder Dividends.. 13 0 0 0 14,817 14,830
Other Operating Costs
and Expenses........... 81,559 13,499 71 1,798 46,959 143,886
-------- -------- ------ ------- -------- ----------
Total Benefits and
Other Deductions..... 112,512 14,320 71 1,974 100,917 229,794
Income from Operations
Before Income Taxes.... 22,773 (13,777) 217 (1,561) 5,100 12,752
Income Taxes............ (2,772) 723 0 0 5,100 3,051
-------- -------- ------ ------- -------- ----------
Net Income............ $ 25,545 $(14,500) $ 217 $(1,561) $ 0 $ 9,701
======== ======== ====== ======= ======== ==========
Assets
Deferred Policy
Acquisition Costs...... 378,397 11,883 147 0 44,209 434,636
Separate Account Assets. 999,130 201,180 6,649 0 0 1,206,959
Policyholder
Liabilities............ 181,484 6,657 0 529 459,884 648,554
Separate Account
Liabilities............ 999,130 201,180 6,649 0 0 1,206,959
</TABLE>
Revenues derived from any single customer do not exceed 10% of the total
consolidated revenues for the years presented. Revenues were predominantly
generated from United States activity. Activity from other geographic locations
did not exceed 10% for any geographic location.
F-53
<PAGE>
NEW ENGLAND LIFE INSURANCE COMPANY
501 Boylston Street
Boston, MA 02116
RECEIPT
This is to acknowledge receipt of a Zenith Flexible Life Prospectus dated
April 30, 1999. This Variable Life Policy is offered by New England Life
Insurance Company.
- ------------------------------------- -------------------------------------
(Date) (Client's Signature)
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 9 of NELICO's By-Laws provides that NELICO shall, to the extent
legally permissible, indemnify its directors and officers against liabilities
and expenses relating to lawsuits and proceedings based on such persons' roles
as directors or officers. However, Section 9 further provides that no such
indemnification shall be made with respect to any matter as to which a director
or officer is adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation. Section 9
also provides that in the event a matter is disposed of by a settlement payment
by a director or officer, indemnification will be provided only if the
settlement is approved as in the best interest of the corporation by (a) a
disinterested majority of the directors then in office, (b) a majority of the
disinterested directors then in office, or (c) the holders of a majority of
outstanding voting stock (exclusive of any stock owned by any interested
director or officer).
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
NELICO pursuant to the foregoing provisions, or otherwise, NELICO has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification may be against public policy as expressed in the Act and may be,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by NELICO of expenses incurred or paid by a
director, officer, or controlling person of NELICO in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, NELICO
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II - 1
<PAGE>
REPRESENTATIONS
New England Life Insurance Company hereby represents that the fees and
charges deducted under the flexible premium adjustable variable life insurance
policies described in this registration statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by New England Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the prospectus with
the items of Form N-8B-2.
The prospectus consisting of 132 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484(b) under the Securities Act of 1933.
Representations.
The signatures.
Written consents of the following persons:
H. James Wilson, Esq. (see Exhibit 3(i) below)
Rodney J. Chandler, F.S.A., M.A.A.A.
(see Exhibit 3(ii) below)
Sutherland Asbill & Brennan LLP (see Exhibit 6 below)
Independent Auditor (see Exhibit 11 below)
The following exhibits:
1.A. (1) January 31, 1983 resolution of the Board of Directors of
NEVLICO **
(2) None
(3)(a) Distribution Agreement between NEVLICO and NELESCO ***
(b)(i) Form of Contract between NELICO and its General Agents **
II - 2
<PAGE>
(ii) Form of contract between NEVLICO and its Agents ***
(c) Commission Schedule for Policies +
(d) Form of contract among NES, NELICO and other broker
dealers *
(4) None
(5)(a) Specimen of Policy +
(b) Riders and Endorsements +
(c) Temporary Term Rider +++
(d) Exclusion from Benefits Riders
(6)(a) Amended and restated Articles of Organization of NELICO ##
(b) Amended and restated By-Laws of NELICO *
(c) Amendments to Amended and restated Articles of
Organization ++++
(7) None
(8) None
(9) None
(10)(a) Specimens of Application for Policy +
(b) Additional Application for Policy +++
2. See Exhibit 3(i)
3.(i) Opinion and Consent of H. James Wilson, Esquire #
(ii) Opinion and Consent of Rodney J. Chandler, F.S.A.,
M.A.A.A.
4. None
5. Inapplicable
6. Consent of Sutherland Asbill & Brennan LLP
7.(i) Powers of Attorney##
(ii) Powers of Attorney of James M. Benson, Robert H.
Benmosche and Catherine A. Rein ++
(iii) Powers of Attorney for David Rogers and Richard
Robinson +++
8. Notice of Withdrawal Right for Policies #
9. Inapplicable
10. Inapplicable
11. Consent of Independent Auditors
12. Schedule for computation of performance quotations ***
13.(i) Consolidated memorandum describing certain procedures,
filed pursuant to Rule 6e-2(b)(12)(ii) and
Rule 6e-3(T)(b)(12)(iii) ***
(ii) Second Addendum to Consolidated Memorandum +++++
14.(i) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and
New England Variable Life Insurance Company ***
(ii) Amendment No. 1 to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors
Corporation and New England Variable Life Insurance
Company #
II - 3
<PAGE>
(iii) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and New England Variable
Life Insurance Company #
______
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed June 22, 1995.
## Incorporated herein by reference to the Variable Account's Form S-6
Registration Statement, File No. 333-21767, filed February 13, 1997.
* Incorporated herein by reference to the Pre-effective Amendment No. 1 to
the Variable Account's Form S-6 Registration Statement, File No. 333-21767,
filed July 16, 1997.
** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-66864,
filed February 25, 1998.
*** Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 24, 1998.
+ Incorporated herein by reference to Post-Effective Amendment No. 3 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed April 24, 1998.
++ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Variable Account's Form S-6 Registration Statement, File No. 333-46401,
filed July 9, 1998.
+++ Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Variable Account's Form S-6 Registration Statement, File No. 33-88082,
filed January 20, 1999.
++++ Incorporated herein by reference to the Post-Effective Amendment No.4 to
the Variable Account's Form S-6 Registration Statement, File No. 33-65263,
filed February 24, 1999.
+++++ Incorporated herein by reference to the Post-Effective Amendment No.10 to
the Variable Account's Form S-6 Registration Statement, File No. 33-52050,
filed April 26, 1999.
(vul-99)
II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
New England Variable Life Separate Account, certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the city of Boston, and the Commonwealth of Massachusetts, on
the 26th day of April, 1999.
New England Variable Life Separate Account
(Registrant)
By: New England Life Insurance Company
(Depositor)
By: /s/ H. James Wilson
-------------------
H. James Wilson
Executive Vice President and
General Counsel
Attest:
/s/ Marie C. Swift
- ------------------
Marie C. Swift
II - 5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, New England
Life Insurance Company certifies that it meets all of the requirements for
effectiveness of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the city of Boston, and the Commonwealth of Massachusetts, on the 26th day of
April, 1999.
New England Life Insurance Company
(Seal)
Attest: /s/ Marie C. Swift By: /s/ H. James Wilson
------------------- -------------------
Marie C. Swift H. James Wilson
Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 26, 1999.
* Chairman, President and
- ----------------------- Chief Executive Officer
James M. Benson
* Director
- -----------------------
Robert H. Benmosche
* Director
- -----------------------
Susan C. Crampton
* Director
- -----------------------
Edward A. Fox
* Director
- -----------------------
George J. Goodman
* Director
- -----------------------
Evelyn E. Handler
* Director
- -----------------------
Philip K. Howard, Esq.
* Director
- -----------------------
Bernard A. Leventhal
* Director
- -----------------------
Thomas J. May
II - 6
<PAGE>
* Director
- -----------------------
Stewart G. Nagler
* Director
- -----------------------
Catherine A. Rein
* Second Vice President and
- ----------------------- Chief Accounting Officer
Richard A. Robinson
* Executive Vice President and
- ----------------------- Chief Financial Officer
David Y. Rogers
* Director
- -----------------------
Rand N. Stowell
* Director
- -----------------------
Alexander B. Trowbridge
By: /s/ Anne M. Goggin
-------------------
Anne M. Goggin, Esq.
Attorney-in-fact
* Executed by Anne M. Goggin, Esquire on behalf of those indicated pursuant
to powers of attorney filed with the Variable Account's Form S-6
Registration Statement, File No. 333-21767, on February 13, 1997, Pre-
Effective Amendment No. 1 to the Variable Account's Form S-6 Registration
Statement, File No. 333-46401, on July 9, 1998 and Post-Effective Amendment
No. 4 to the Variable Account's Form S-6 Registration Statement, File No.
33-88082, on January 20, 1999.
II - 7
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Title Numbered Page*
- -------------- ----- --------------
1.A.5(d) Exclusion from Benefits Riders
3. (ii) Opinion and Consent of Rodney J.
Chandler, F.S.A., M.A.A.A.
6. Consent of Sutherland, Asbill &
Brennan LLP
11. Consent of the Independent Auditors
_________
* Page numbers inserted on manually-signed copy only.
<PAGE>
Exhibit 1.A.5(d)
NEV-93-1
Rider: Exclusion from Benefits
Any rider which provides a benefit upon total disability of ,
-----------------
that is attached to Policy Number is issued subject to the
------------------
terms of this Rider (NEV-93-1).
Exclusion from Benefits
Any rider which provides a benefit upon total disability excludes certain risks.
By means of this Rider (NEV-93-1), the Company also excludes the risk and will
not provide benefits if total disability results from:
Contract
This Rider (NEV-93-1) is issued with and made a part of any rider which provides
a benefit upon total disability. None of the provisions of any rider which
provides a benefit upon total disability are changed except as provided in this
Rider.
Acceptance
The Owner accepts any rider attached to the Policy which provides a benefit upon
total disability with full knowledge and understanding of the effect of this
Rider (NEV-93-1).
Date Owner
- ----------------- ---------------------------
New England Variable Life Insurance Company
Administrative Office:
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto H. James Wilson
/s/ /s/
President Secretary
<PAGE>
NEV-94-1
Rider: Exclusion from Benefits
Any rider which provides a benefit upon total disability of ,
-----------------
that is attached to Policy Number is reinstated subject to the
----------------
terms of this Rider (NEV-94-1).
Exclusion from Benefits
Any rider which provides a benefit upon total disability excludes certain risks.
By means of this Rider (NEV-94-1), the Company also excludes the risk and will
not provide benefits if total disability results from:
Contract
This Rider (NEV-94-1) is issued with and made a part of any rider which provides
a benefit upon total disability. None of the provisions of any rider which
provides a benefit upon total disability are changed except as provided in this
Rider.
Acceptance
The Owner accepts any rider attached to the Policy which provides a benefit upon
total disability with full knowledge and understanding of the effect of this
Rider (NEV-94-1).
Date Owner
- ------------------ -----------------------
New England Variable Life Insurance Company
Administrative Office:
501 Boylston Street, Boston, Massachusetts
Robert A. Shafto H. James Wilson
/s/ /s/
President Secretary
<PAGE>
Exhibit 3(ii)
April 26, 1999
New England Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Gentlemen:
In my capacity as Second Vice President and Actuary of New England Life
Insurance Company (the "Company"), I have provided actuarial advice concerning:
The preparation of Post-Effective Amendment No. 6 to the registration
statement on Form S-6 (File No. 33-88082) filed by New England Variable
Life Separate Account and the Company with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to variable life
insurance policies (the "Registration Statement"); and
The preparation of policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
1. The illustrations of death benefits, net cash values, accumulated premiums,
internal rates of return on net cash values and internal rates of return on
death benefits shown in Appendix A of the Prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions
of the Policies. The rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown in
the illustrations, appear to be correspondingly more favorable to
prospective purchasers of Policies for male insureds, aged 40 in the
underwriting class illustrated than to prospective purchasers of Policies
for insureds of other sexes or ages. Insureds in other underwriting
classes may have higher cost of insurance charges.
2. The information contained in the description of historical investment
experience in Appendix B, based on the assumptions stated in the Appendix,
is consistent with the provisions of the Policies.
<PAGE>
3. The illustration of net premiums shown under the heading "Charges and
Expenses-Deductions from Premiums" in the Prospectus contains the net
premium amounts allocated to the Variable Account for a $3,000 premium
under a Policy.
4. The information contained in the example of how the maximum loanable amount
is determined under the heading "Other Policy Features-Loan Provision" in
the Prospectus is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an Exhibit to this Post-
Effective Amendment to the Registration Statement and to the use of my name
under the heading "Experts" in the Prospectus.
Sincerely,
Rodney J. Chandler, F.S.A., M.A.A.A.
Second Vice President and Actuary
2
<PAGE>
Exhibit 6
[Sutherland Asbill & Brennan LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in Post-
Effective Amendment No. 6 to the Registration Statement on Form S-6 for Zenith
Flexible Life, issued through the New England Variable Life Separate Account
(File No. 33-88082). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Kimberly J. Smith
----------------------------
Kimberly J. Smith
Washington, D.C.
April 26, 1999
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 6 to the
Registration Statement No. 33-88082 of New England Variable Life Separate
Account (the "Separate Account") of New England Life Insurance Company (the
"Company") of our reports dated February 10, 1999 and February 16, 1999
appearing in the Prospectus, which is part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 26, 1999
